A new analysis by Standard & Poor’s has said that a no-deal Brexit will tip the UK into recession.
The credit rating agency has warned that falling employment and lower incomes will trigger a recession and a deal must be reached before March.
Although Brexit negotiations have stalled over arrangements for the Irish border, the S&P has said it expects an agreement to be reached before the UK is due to leave the EU.
However, the chance of a no-deal was on the rise and this is something that cannot be ignored by investors.
In the event of a no-deal Brexit, the report has warned of rising unemployment, a 10% fall in house prices, lower incomes and higher inflation.
“Our base-case scenario is that the UK and the EU will agree and ratify a Brexit deal, leading to a transition phase lasting through 2020, followed by a free trade agreement,” said S&P Global Ratings credit analyst Paul Watters.
“But we believe the risk of no deal has increased sufficiently to become a relevant rating consideration. This reflects the inability thus far of the UK and EU to reach agreement on the Northern Irish border issue, the critical outstanding component of the proposed withdrawal treaty.”
“By 2021, economic output would still be 5.5% less than what would have been achieved in a scenario with an orderly exit and transition period for the UK,” the report added.
Whilst Theresa May has ensured that Bexit negotiations are 95% complete, crucial talking points such as the Irish border remain unresolved.
Michel Barnier from the EU has called for a backstop that would keep the Irish border open to trade, creating a border in the Irish sea. This has been rejected by May.