No-deal Brexit will cut 3% off UK economic growth, warns OECD

A no-deal Brexit will slice almost 3% from Britain’s economic growth over the next three years compared with just 0.6% from the rest of the EU, according to the OECD’s latest health check of the global economy.

Amid concerns that all developed countries will experience slower growth next year, the Paris-based club for the world’s 35 richest states warned that the UK would take the biggest hit if the government failed to secure an agreement with the EU.

OECD analysis estimates that losing unfettered access to EU markets after 31 October will probably plunge the UK into a recession next year. The loss of trade, investment and technical knowledge plus a further fall in the pound will prolong Britain’s low rate of growth until at least 2022.

The Organisation for Economic Co-operation and Development is an intergovernmental organisation formed in 1961 to work on global trade and the world economy. It has 36 member countries.

Based in Paris, the OECD is best known for the regular economic reports and data it publishes, and for the PISA rankings, which compare academic achievement across nations. It also gathers and publishes large amount of international economic data.

Often disparagingly referred to as “a club of rich countries” by the Economist magazine, the organisation has its origins in the Organisation for European Economic Cooperation, set up to administer the post-war Marshall plan for European economic recovery.

Laurence Boone, the OECD’s chief economist, said an agreement to smooth Britain’s exit was important to protect businesses and the economy. “The best thing is to avoid a no-deal Brexit and to stay closely aligned to the EU as possible,” she said.

Boone said she was concerned that after two years of heightened uncertainty created by tit-for-tat tariff wars and the Brexit negotiations, the depressed state of the global economy risked becoming permanent.

“The concern is that with high levels of uncertainty going on for so long that we run the risk of low levels of trade and investment becoming entrenched. And that would leave countries even more exposed to a financial shock,” she said.

Related: Global economic growth has peaked, warns OECD

Global investment fell to 1% in the second quarter of the year and world trade dropped from an annual rate of expansion of 6% in 2016 to 0.5%[check] in the second quarter.

Boone said the situation was likely to worsen next year if powerful trading countries, including the US and China, continued to expand the number of goods subject to higher import tariffs.

The OECD said it expected the UK’s rate of GDP growth to fall to 0.9% from 1%this year, down 0.2 percentage points from its May forecast.

But she said the UK would experience a contraction with knock-on effect to employment and investment in 2020 without a Brexit deal, though it was difficult to estimate the full extent of the shock without knowing how the Bank of England and the government would react.

Across the 19-member eurozone, growth will drop 0.1 percentage points to 1.1%. The US will continue to grow at the fastest rate among developed nations and stave off threats of an imminent recession, though GDP growth is expected to fall from 2.4% this year to 2% next year, the OECD said.

In May, the OECD said the global economy had stabilised after a difficult year marred by trade wars, volatile financial markets and rising oil prices. But the gloomier picture painted this week by the OECD reveals a global economy set on downward trend.

Boone urged developed countries to open their wallets to bolster infrastructure spending to stave off slowing growth and improve tax incentives for firms to expand and create jobs.

She praised the Dutch government for outlining a package of measures this week worth 1% of GDP that included extra cash for affordable housing, funds to support a range of infrastructure projects and plans to replace gas production with renewable energy.