LONDON • Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the European Union in a worst-case Brexit scenario in four months' time, the Bank of England (BOE) has said.
Hours after the government issued its own stark warning about a no-deal Brexit, the BOE on Wednesday said the economy could shrink by up to 8 per cent in about a year.
The two reports could add to pressure on lawmakers to drop their opposition to the Brexit deal that Prime Minister Theresa May struck with EU leaders on Sunday, which is far from certain to be approved in Parliament on Dec 11.
Supporters of a more definitive break with Brussels quickly dismissed the reports as scaremongering, while advocates of closer ties said the forecasts demonstrated that promises of greater prosperity outside the EU had been a lie.
BOE said the "disorderly" scenario - involving severe delays at British borders and financial markets' loss of confidence in British institutions - was not its base case.
But if it happened, there would be a 25 per cent tumble in the value of the pound - taking it close to parity with the US dollar - as well as a spike in inflation to 6.5 per cent from about 2.4 per cent now, and a jump in interest rates. House prices would fall by 30 per cent, it added.
BOE said a merely "disruptive" Brexit, with goods flowing across borders but facing tariffs and other barriers, would cause a 3 per cent fall in gross domestic product.
"Our job is not to hope for the best but to prepare for the worst," BOE governor Mark Carney said, noting that Britain's banks could cope with the worst Brexit shock.
A deal that keeps Britain and the EU in a close future relationship could lead to faster economic growth than what BOE had pencilled in earlier this month, the central bank said.
All the scenarios assumed interest rates will rise. In the worst-case Brexit, rates could rise to 5.5 per cent - a level last seen in 2007, before the financial crisis - from the current base rate of 0.75 per cent.
Hours earlier, the government acknowledged that any Brexit option would be worse for the economy than staying in the EU, but said leaving the bloc without any agreement with Brussels would weigh heavily on growth at least into the 2030s.
By contrast, the plan that Mrs May agreed on with EU leaders on Sunday "delivers an outcome that is very close to the economic benefits of remaining in", finance minister Philip Hammond said.
Hardline eurosceptics viewed the statements as a repeat of dire official warnings intended to sway voters before 2016's referendum.
"I'm afraid we must be ready for Project Fear 2.0," said Mr David Davis, who quit as Brexit minister in July in protest at Mrs May's plans.
Former BOE interest rate setter Andrew Sentance said: "The Bank of England is undermining its credibility and independence by giving such prominence to these extreme scenarios and forecasts."
Mr Carney denied the scaremongering charge, saying: "Parliament has demanded this analysis. It's not supposed to make people scared, it's supposed to provide reassurance that, even if this happened, which is not likely, the system is more than ready for it."