The U.K. government lowered its economic growth forecast for 2019 and warned of "significant disruption" from uncertainty over Brexit.
The Office for Budget Responsibility, or OBR, projected the U.K. economy to expand 1.2% this year, down from an October 2018 forecast of 1.6% growth. The forecast was based on the OBR's assumption that the U.K. will make an orderly departure from the European Union on March 29 and start a transition period that lasts to the end of 2020.
"In recent weeks, survey indicators of current activity have weakened materially, in part reflecting heightened uncertainty related to Brexit," the OBR said in its forecast report.
The office warned that business investment is expected to decline for a second straight year to its weakest level since the financial crisis, due to Brexit uncertainty.
Economic expansion is expected to pick up to 1.4% in 2020 and to 1.6% each year through 2023, as Brexit uncertainty fades and productivity growth gradually improves, the OBR said.
The GDP growth forecasts for 2020 and 2023 were unchanged from the October 2018 estimates, while the growth projections for 2021 and 2022 were each raised from 1.5%.
"[A] no-deal Brexit would deliver a significant short- to medium-term reduction in the productive capacity of the British economy," said Finance Minister Philip Hammond, who presented the OBR forecasts in his latest budget statement.
In the long term, the U.K. would have a "smaller, less prosperous" economy if it crashes out the EU without a withdrawal agreement in place, Hammond added, mired by higher unemployment, lower wages and higher prices.
Hammond said an orderly Brexit would unlock a "deal dividend," or an economic boost from increased business confidence and investment.
After rejecting Prime Minister Theresa May's revised Brexit deal, the House of Commons will decide March 13 whether the U.K. should leave the EU without a divorce deal. If that vote fails, lawmakers will vote March 14 whether the current Brexit date should be delayed.
In his budget statement, Hammond said U.K. borrowing in 2019 will be £3 billion less than forecast and come in at 1.1% of GDP. He said state borrowing will decline from £29.3 billion in the 2019-2020 fiscal year to £13.5 billion in 2023-2024.