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OBR: A no-deal Brexit is likely to shave extra 2% off the UK GDP

The latest forecasts published by the Office for Budget Responsibility (OBR) Wednesday showed that the UK Gross Domestic Product (GDP) could be shaved off by 2% if the Kingdom and European Union (EU) fail to strike a Brexit trade deal.

Key takeaways

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

“Consumer prices could rise by 1.5% above the OBR’s central forecast, and lower tax receipts and higher spending on welfare and other measures could mean borrowing is higher by 10 billion pounds ($13.38 billion) a year on average from 2021-22 onwards, pushing up debt.”

“The imposition of tariffs on EU imports, higher non-tariff barriers, and a drop in the exchange rate all raise consumer prices, leaving them 1.5% higher by the forecast horizon than in our central forecast.”

Market reaction

GBP/USD holds steady below 1.3400, as markets rethink the prospects for a Brexit trade deal. The cable surged on Wednesday, courtesy of broad-based US dollar weakness amid mixed US macro news.

The spot was last seen trading at 1.3384, almost unchanged on the day.

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