The Bank of England has warned that leaving the EU in a no-deal scenario could lead to a recession worse than the 2008 financial crisis.

In the bank’s Brexit analysis, it has found that a disorderly departure from the EU would send the pound plunging by a quarter and immediately shrink the economy by 8%.

The latest figures are not what the Bank of England necessarily expects but is the worst-case scenario if the UK crashes out without a deal.

The news comes after Philip Hammond’s Brexit analysis, where the Chancellor admitted that the UK would be worse off in all Brexit scenarios, however, Theresa May’s option is the best bet.

Following a no-deal Brexit, house prices are expected to crash 30%, inflation could rise to 6.5% and unemployment in the UK could increase from 4.1% to about 7.5%.

The bank has come under fire for creating hysteria but Carney insists that there is a difference between a forecast and scenario.

Bank of England governor Mark Carney said: “These are scenarios not forecasts. They illustrate what could happen not necessarily what is most likely to happen.”

“Taken together the scenarios highlight that the impact of Brexit will depend on the direction, magnitude and speed of the effect of reduced openness of the UK economy.”

The latest analysis has also been seen as a final attempt to scare MPs voting in support of the prime minister’s Brexit deal. May will no doubt welcome Carney’s worst-case scenario to garner support for her deal.

Andrew Sentance, who is a former BoE interest rate setter, challenged the bank over the analysis.

“Does anyone really believe any of this as a real-world scenario? The Bank of England is undermining its credibility and independence by giving such prominence to these extreme scenarios and forecasts,” he said.

As well as a disorderly departure from the EU, the bank also considered a “close” relationship between the UK and EU, and scenario of a “less close” relationship.

UK Banks

The Bank of England also conducted stress tests on 7 major UK lending institutions. The banks were put through a series of scenarios that were 2.5 times worse than the BoE’s most negative Brexit outcome. All banks passed including RBS, Barclays (LON: BARC) and HSBC (LON: HSBA).

Marc Kimsey, Equity Trader at Frederick & Oliver, said on the latest Brexit analysis: “The takeaway is somewhat bitter-sweet. The banking sector’s efforts to get Brexit-fit are admirable but the thought of it being tested so rigorously 10 years on from the last disaster draws a wince.”