Great Britain could be headed toward a long recession if it can’t strike a Brexit deal. Credit ratings agency Standard & Poor’s (S&P) warned that failing to make a deal might bring Britain into a recession that could last as long as the one sparked by the 2008 financial crisis.
“Our base-case scenario is that the U.K. and the EU will agree and ratify a Brexit deal,” said S&P Global Ratings Head of Corporate Research Paul Watters, according to Reuters. “But we believe the risk of a no-deal has increased sufficiently to become a relevant rating consideration.”
As a result, S&P has given the U.K. an “AA” credit rating, a full step below its top “AAA” rating. In addition, failure to reach a deal would likely knock that grade down even further. S&P predicted that Britain would experience a “moderate” recession lasting four to five quarters if a deal is not reached in time, shrinking the world’s fifth-largest economy by 1.2 percent in 2019 and further by 1.5 percent in 2020.
“Most of the economic loss of about 5.5 percent [of] GDP over three years, compared to our base case, would likely be permanent,” S&P said.
Unemployment would also rise to above 7 percent from around its current 4 percent, while house prices would likely fall by 10 percent over two years.
In July, Brussels rejected the U.K.’s proposals on how to govern London’s access to the European market after Brexit, saying that British Prime Minister Theresa May’s latest plan would take away the EU’s “decision-making autonomy.” The uncertainty means many in the U.K. are preparing for the chance that there might not be a deal in place before the deadline.
With that in mind, the U.K. government has issued advice on accessing public sector contracts if this worry does become a reality. Major food and drink companies have been stockpiling supplies in case key ports stop operating and if a deal is not in place before the deadline.