Reverse Brexit to avert economic disaster for UK: dire warning on leaving EU by OECD think tank

Stopping Brexit could avert a disaster for Britain’s economy, international experts said today.

In a bombshell report, Paris-based economic think tank the OECD said growth was already falling fast from 1.6 per cent this year to a crawl of just one per cent next year.

Painting an apocalyptic vision of a “hard” exit from the European Union in 2019, it warned that things could get far worse.

A disorderly Brexit without a trade deal “would trigger an adverse reaction of financial markets”, driving down the Pound. It warned that “business investment would seize up” and higher prices would throttle consumption.

It warned of “major” economic effects if Scotland and Northern Ireland broke away from the UK because of Brexit and “political instability”.

However, the OECD analysis found that if there was a decision to halt Brexit, such as by a second referendum, the “positive impact on growth would be significant”.

Families and businesses took a Brexit battering as inflation surged to its highest rate for five and a half years.

Soaring food and transport costs pushed the consumer prices index to a peak of three per cent in September, a level not seen since April 2012 and up from 2.9 per cent in August.

Economists also warned of a hike in interest rates next month and a £1 billion hike in business rates next year as a result.

And Bank of England governor Mark Carney admitted to MPs he would probably have to write a letter to the Chancellor next month explaining why inflation was so far off the two per cent target.

“It’s more likely than not that I will be writing on behalf of the MPC a letter to the Chancellor,” he told the Treasury Select Committee.

With earnings crawling upwards at just over two per cent, the rising cost of living left the average family suffering a real-terms income cut of around 0.6 per cent.

Experts said low income families would be even harder hit because of the cap on benefits. The Resolution Foundation think tank found that a working family with two children was set to lose £315 a year.

Former Conservative minister David Willetts, of the Resolution Foundation, said: “Brexit is already squeezing living standards because the falling pound is pushing up prices.”

He warned: “If we left the EU without a deal there would be another big hit to living standards.”

Labour MP Wes Streeting MP said: “Today’s OECD analysis should be the final nail in the coffin for the already long-buried notion that Brexit will benefit our economy.

“A hard Brexit or walking away without a deal would wreak even more punishment on the UK economy.”

Liberal Democrat leader Sir Vince Cable said: “The Brexit squeeze is getting worse, and it is hitting the poorest families hardest. The Government must change course from a destructive Brexit that would push up prices further.”

High Street retailers said that the rise in business rates could drive some stores to the wall.

The retail price index, which is used to set April’s business rates, was pegged at 3.9 per cent.

Helen Dickinson, of the British Retail Consortium, said: “For many shops this may be the last straw.”

She warned of “gap-toothed high streets” and higher rates bills being passed on to consumers in the form of price hikes.

Economist Howard Archer, of the Item Club, said today’s figures from the Office for National Statistics showed “the squeeze on consumers intensified in September”. He said they raised the likelihood of an interest rate increase on November 2 from 0.25 to 0.5 per cent.

“Given that the Bank of England has been talking up the likelihood of a near-term interest rate hike and risks losing credibility if it does not follow through with action,” he said.

The squeeze would continue until the end of the year, but inflation was likely to float down to about two per cent next year as the post-Brexit referendum devaluation passed through the system.

Official figures on earnings data for last month, due tomorrow, are expected to confirm that the squeeze on real incomes is got worse in September.

Today’s CPI of three per cent was on the very edge of the official target limits for inflation. Any higher and the Bank of England would have been forced to write to Philip Hammond with an explanation.

The OECD made clear that it believed the economy would be growing healthily but for the 2016 referendum vote for Brexit.

“Economic performance was solid until the end of 2016, stimulated by a strong business friendly environment, very supportive and reactive monetary policy, and a flexible approach in meeting fiscal goals,” it said.

Mr Carney told MPs that the higher inflation was predicted after the Brexit vote. “Inflation rising potentially above the three per cent level in coming months is something we had anticipated,” he said.

ONS head of inflation Mike Prestwood said: “Food prices and a range of transport costs helped push up inflation in September.”