Bank of England warns pound to crash 25 percent in no-deal Brexit

UK's central bank says smoother Brexit may mitigate much of economic effect from leaving EU.

    Bank of England warns pound to crash 25 percent in no-deal Brexit
    The bank's report is another setback for Theresa May as she tries to sell her Brexit deal to a sceptical nation [Henry Nichols/Reuters]

    The Bank of England has warned a no-deal Brexit would trigger a financial crisis in the United Kingdom, causing the pound to plunge by 25 percent.

    The UK's central bank on Wednesday said in a report that such a scenario could mean a gross domestic product (GDP) shortfall of 8 percent in the first quarter of 2019.

    The bank said a smoother Brexit for Britain could help mitigate much of the economic effect from the country's decision in June 2016 to leave the European Union.

    The bank's warning came shortly after the British government said the country will be poorer after leaving the EU than if it had stayed in, no matter what sort of trade deal it enters with the bloc.

    A government report released earlier on Wednesday estimated that 15 years after Brexit, the UK's GDP will be 0.6 percent lower, even if it enters into a trade deal with the EU.

    A no-deal Brexit, on the other hand, would render the GDP 9.3 percent smaller than it would otherwise be in the same period, the report added. 

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    British Finance Minister Philip Hammond said the departure deal agreed on Sunday between Britain and the EU was the optimum way to minimise the cost of leaving the bloc.

    Hammond insisted that the economy was not the only consideration and controlling Britain's borders, money and laws also had value.

    "There will be a cost to leaving the EU because there will be impediments to our trade. What the prime minister's deal does is absolutely minimise these costs," he told BBC radio.

    Bad news for Theresa May

    The report comes as bad news for Prime Minister Theresa May as she tries to sell her Brexit divorce deal to a sceptical nation.

    May has less than a fortnight to convince MPs to back the deal in a December 11 vote and avoid plunging Brexit into chaos, four months away from Britain's March 29 departure date.

    May runs a minority Conservative government and opposition parties, as well as many of her own MPs, are against the deal.

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    "This analysis does not show that we will be poorer in the future than we are today," May told MPs in parliament. "It shows we will be better off with this deal."

    "Our deal is the best deal available for jobs and our economy that allows us to honour the referendum," she said, referring to the 2016 vote to leave the EU.

    On Wednesday, she visited Scotland, which voted strongly to remain in the EU in the 2016 referendum. Scottish First Minister Nicola Sturgeon has said May's deal is "bad" and her Scottish National Party will vote against it.

    Jeremy Corbyn, leader of Britain's main opposition Labour Partytold May she was running "the most shambolic government in living memory" and she should "accept the reality" that parliament would not back the deal.

    "It's not hard to be the best deal, if it's the only deal," he said. "By definition, it's also the worst deal."

    Some Brexiteers think the Brexit deal keeps Britain shackled too closely to Brussels, while pro-EU MPs think the terms are worse than staying in the bloc and want a second referendum.

    An online Survation poll of 1,030 adults for the Daily Mail newspaper found that 37 percent supported the deal - up 10 percent on November 15 - and 35 percent opposed it, down 14 percent.

    Some 41 percent wanted MPs to vote for the deal and 38 percent wanted them to vote it down, as per the survey conducted on Tuesday.

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    SOURCE: Al Jazeera and news agencies