The government has issued a stark warning about the economic impact of a no-deal Brexit scenario ahead of the results of the Bank of England’s 2018 stress test on banks.
A report from the government estimates Britain’s economy would shrink by 9.3% about 15 years after Brexit if the UK leaves the European Union without a deal.
If MPs back Theresa May’s Brexit plan, the economy is estimated to be 3.9% smaller over the same period, the report revealed.
The warnings could potentially help May address fierce opposition to her Brexit agreement, which was approved by EU leaders on Sunday.
MPs are expected to vote on the deal on December 12 but Labour, the Lib Dems, the SNP, the DUP and many Conservatives MPs are against the plan.
May has told MPs that voting against her plan would take Britain back to square one, making a no-deal Brexit highly possible given that there is barely four months left until the UK leaves the EU.
Some MPs have opposed the deal because of a backstop that aims to avoid a hard Irish border. The backstop would mean Northern Ireland would essentially remain in the EU if trade talks collapse and there’s no future deal.
Hard Brexit supporters think the deal will hurt Britain’s economy by making it harder to strike trade deals with other countries and regions outside Europe.
However, business leaders have backed the plan, mainly because they believe leaving the EU without a deal would have worse repercussions for the economy.
The deal includes a transition period to ease Britain out of the EU, something that Bank of England governor Mark Carney and Chancellor Philip Hammond have both previously stressed as important.
Last week Carney said leaving the EU without a Brexit deal could lead to a big hit to the company, the likes of which has not been seen since the oil crisis of the 1970s.
Ahead of the release of the government’s Brexit forecasts, Hammond told the BBC on Wednesday that May’s plan “delivers an outcome that is very close to the economic benefits of remaining in (the EU)”.
He also dismissed remarks from former Brexit secretary Dominic Raab, who told The Daily Telegraph that the government’s assessment of the impact of different Brexit outcomes looked “like a rehash of Project Fear”.
Project Fear was a term Brexiteers used in accusing the government of trying to scare voters into remaining in the EU ahead of the 2016 referendum.
Raab, who resigned as May’s Brexit minister earlier this month, told the Telegraph: “People expect to be inspired, not scared witless into deferring to the government.”
Hammond responded: “I am not trying to scare anybody and I reject the term scare-mongering,” he said.
The Bank of England is due to publish its stress tests on UK banks at 4.30pm. It will show how banks will cope under different Brexit scenarios.