LONDON: Failure by Britain and the European Union to agree a free trade deal would wipe an extra two per cent off the United Kingdom’s economic output while driving up inflation, unemployment and public borrowing, official forecasts showed on Wednesday.

The Office for Budget Responsibility (OBR) revisited its Brexit forecasts after deciding the prospect of a “no deal” exit remained a risk, just over five weeks before Britain fully leaves the world’s biggest trading bloc on Dec 31.

The OBR said the imposition of tariffs under World Trade Organisation rules and disruption at borders would hit parts of the economy such as manufacturing that were emerging relatively unscathed from the Covid-19 pandemic.

The independent body had already forecast Brexit would cost Britain 4pc of GDP in the long run even if Britain secures a free trade agreement with the EU, compared to it staying in the bloc.

“This (no deal) would further reduce output by 2pc initially and 1.5pc at the forecast horizon,” it said.

The initial economic hit would be felt at the start of the following year, and the OBR predicted little of the lost output would be recovered over the next five years.

Unemployment, at 4.8pc in the third quarter of 2020, could peak at 8.3pc in the third quarter of 2021 if there is no deal — 0.9 percentage points higher than in its central forecast for that period.

Published in Dawn, November 26th, 2020