Central bank predictions
His assumptions are based on the Bank of England assuming that a deal is reached between the UK and the EU on the terms of the UK’s exit.
Source: Heartwood Investment Management
Mr Haldane’s boss, Bank of England governor Mark Carney, told the Treasury Select Committee in September that the most immediate impact of a 'no deal' Brexit is that interest rates would rise.
The Bank of England has been happy to ignore the higher inflation caused by the fall in sterling that occurred in the immediate aftermath of the vote. The central bank’s view was that this inflation was temporary, and that supporting economic growth through keeping interest rates low was more important than curtailing temporary inflation.
But Mr Carney notes the inflation that would likely be the result of a no deal Brexit would be more permanent in nature, as it would be caused by a worsening of the supply shock.
The Bank of England’s view in that situation is rates would have to rise in order to protect the value of sterling, even if that means unemployment rises and the rate of economic growth slows.
Henry Dixon, a portfolio manager on the UK equities team at Man GLG, observes if sterling were to fall by more in percentage terms than the cost of tariffs on UK exports, then there could be a boost to the economy.
Mr Lawson says the shock to the economy of a no deal Brexit would wipe out any of the gains from a fall in the value of sterling, and that a recession would be inevitable.
The Bank of England’s stress tests, which seek to paint a picture of what the economy would look like in the event of a no-deal Brexit, predicted unemployment and inflation would reach levels seen in the financial crisis.
David Coombs, multi-asset investment manager at Rathbone Unit Trust Management, adds, “it is hard to see” how the UK could avoid a recession if the UK exits without a deal.