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No-deal Brexit could push UK debt to highest level since 1960s, think tank says

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No-deal Brexit could push UK debt to highest level since 1960s, think tank says

Crashing out of the EU without a Brexit deal would raise the U.K. national debt to its highest level since the 1960s, requiring the country to return to a period of austerity or spending cuts, the Institute for Fiscal Studies said in a new report.

Under a no-deal Brexit scenario, government borrowing would rise to about £100 billion and total debt would climb to nearly 90% of national income, according to the IFS Green Budget 2019 report.

The budget deficit is also projected to increase to more than 4% of national income in 2021–22 following a no-deal Brexit, the report added.

The IFS said some fiscal tightening might be needed in the coming years to keep government debt on a sustainable path.

"In the long term the only sustainable response to a smaller economy is to spend less on public services or tax more to support them," said IFS research economist Christine Farquharson, one of the report's editors. "This is not the time for permanent tax cuts or spending increases."

In the event of a no-deal Brexit, the U.K. economy is forecast to stall over the next two years, before growing by 1.1% in 2022, according to the IFS report.

U.K. Prime Minister Boris Johnson, who has repeatedly said Brexit should take place on Oct. 31 even in the absence of a withdrawal agreement, has promised to lower taxes and hike spending to stimulate economic growth. In September, Chancellor of the Exchequer Sajid Javid unveiled the biggest increase in public spending in 15 years — £13.8 billion, or a 4.1% rise from current levels — for financial year 2020-21, saying the government is "turning the page on austerity."

As heightened uncertainty over the fate of Brexit remains, the IFS suggested that Javid could set a "fiscal anchor," instead of borrowing or debt targets, to limit the amount of tax cuts or spending increases.

"Well-designed fiscal rules could then be set out once at least some Brexit uncertainties have been resolved," the IFS report said.