BoE warns of sharp decline under disorderly Brexit
Bank of England Governor Mark Carney says that the UK risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the EU in a worst-case Brexit scenario
Turning to no-deal and no-transition Brexit, there are a range of possible outcomes in the event of that. In both scenarios, tariffs and other trade barriers are introduced suddenly next spring. The UK recognises EU product standards, but the EU does not reciprocate.
In the more severe or disorderly scenario, the UK's border infrastructure does not cope smoothly with new customs requirements for some time. There is a pronounced increase in the return investors demand for holding sterling assets.
By the end of 2023, GDP is more than 10% lower in the disorderly scenario compared to that May 2016 trend. Despite this sharp contraction in GDP, something that's bigger than happened during the financial crisis, unemployment rises to 7 and 1/2%, less than during the financial crisis. And that reflects the supply-driven nature of the downturn.
So even after that unlikely event, we calculate the major UK banks will still have capital ratios around three times higher than they had before the financial crisis.