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UK budget watchdog warns disorderly Brexit may bring 'severe' economic impact


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UK budget watchdog warns disorderly Brexit may bring 'severe' economic impact

An abrupt and disorderly Brexit could have a "severe" short-term impact on U.K. public finances and the economy, the U.K. government's independent forecaster said in a new report.

The Office for Budget Responsibility, or OBR, warned that a disorderly Brexit remains a possibility and that it could hurt economic growth by weakening demand and tightening the supply of some imported products and domestic goods.

"U.K. asset prices could fall sharply which, together with heightened uncertainty, would cause households and businesses to rein in their spending. A fall in the pound would also raise domestic prices, squeezing households' real incomes and spending," the OBR said.

"And there could be temporary constraints on supply if, for instance, a lack of customs preparedness led to significant delays at the border," the budget watchdog added.

The lack of precedent for Brexit makes its impact difficult to predict, the OBR said. However, it drew a comparison with the three-day work week introduced by the U.K. in early 1974, which resulted in a decline of slightly less than 3% in quarterly economic output.

The OBR also said in its report that post-Brexit trade agreements with other countries will not provide a major boost to the U.K. economy. It cited a government analysis showing that a free-trade agreement between the U.S. and Britain will increase U.K. GDP by only 0.1% to 0.3% in the long run.

Additional trade pacts with regional economic blocs such as the Trans-Pacific Partnership, the Association of South East Asian Nations and the Gulf Cooperation Council, and trade deals with China, India, Australia and New Zealand will only boost U.K. GDP by 0.1% to 0.4%, according to the OBR.

"As well as being challenging to negotiate, the evidence suggests that the benefits of additional bilateral trade deals are likely to be relatively modest — and the impact of any individual deal may not be material for our forecast," the OBR said.

In July, the U.K. said it plans to seek trade deals with the U.S., Australia and New Zealand, as well as seek entry into the revised Trans-Pacific Partnership trade agreement, as it positions itself as "Global Britain" following Brexit.