Britain’s economy would suffer a “serious” short-term hit from a no-deal Brexit as it also grapples with the impact of a second wave of coronavirus, a major international organisation has warned.
The Organisation for Economic Co-operation and Development (OECD) said the resurgence of the pandemic comes at a “historic and critical moment” for the UK as the year-end Brexit deadline looms.
It warned of a marked short-term impact on the economy if the UK fails to reach agreement with the EU and longer-term scarring on trade and jobs.
In its latest economic outlook, the OECD said: “The failure to conclude a trade deal with the European Union by the end of 2020 would entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term.
“By contrast, a closer trade relationship with the European Union than expected, notably encompassing services, would improve the economic outlook in the medium term.”
It downgraded its outlook for the UK economy, forecasting that gross domestic product (GDP) will plunge by 11.2% in 2020 after a contraction in the fourth quarter due to the latest lockdown.
This would see the UK suffer one of the biggest contractions, with only Argentina faring worse among the G20 group of advanced economies.
Previously, the OECD predicted a 10.1% fall in UK GDP over 2020.
It now also sees a far slower recovery in 2021, with growth of 4.2% followed by 4.1% in 2022.
But it said there is a chink of light now for the world economy, thanks to the recent positive developments on effective Covid-19 vaccines.
OECD chief economist Laurence Boon said: “For the first time since the pandemic began, there is now hope for a brighter future.
“Progress with vaccines and treatment have lifted expectations and uncertainty has receded.”
But she added that the “road ahead is brighter but challenging”, with the recovery set to be uneven across the globe and the potential for a “severe” hit if vaccines prove ineffective in controlling the pandemic.
She said: “The current resurgence of the virus in many places reminds us that governments may be forced again to tighten restrictions on economic activity, especially if the distribution of effective vaccines progresses slowly.
“And confidence would take a hit if vaccine distribution or secondary effects proved disappointing.
“The toll on the economy could be severe, in turn raising the risk of financial turmoil from fragile sovereigns and corporates, with global spillovers.”
The OECD is forecasting global GDP to fall 4.2% in 2020 before rising 4.2% in 2021 and 3.7% in 2022.