LONDON • Britain might be entering a full-blown recession and a no-deal Brexit could more than double the country's budget deficit next year, the watchdog for public finances said yesterday.

The Office for Budget Responsibility (OBR) said the world's fifth-biggest economy appeared to have flatlined or possibly contracted in the second quarter, part of which was probably "payback" after Brexit-related stock building early this year.

"But surveys were particularly weak in June, suggesting that the pace of growth is likely to remain weak. This raises the risk that the economy may be entering a full-blown recession," it said in a report on the outlook for the public finances.

A no-deal Brexit would hurt confidence and deter investment and lead to higher trade barriers with the European Union, pushing down the value of the pound and causing the economy to contract by 2 per cent by the end of next year, the OBR said, referring to forecasts by the International Monetary Fund.

A no-deal Brexit could add £30 billion (S$51 billion) a year to public borrowing by the 2020/2021 financial year, the OBR said.

"The spending control framework seems to be under pressure, with major announcements being made outside fiscal events, and the Conservative leadership making pledges that would prove expensive if pursued," it added.

REUTERS