A no-deal Brexit would plunge Britain into a recession that would shrink the economy by 2%, push unemployment above 5% and send house prices tumbling by around 10%, according to the government’s independent forecasting body.

In an assessment of the impact of Britain leaving the EU without a deal at the end of October, the Office for Budget Responsibility said the result would be a year-long downturn that would increase borrowing by £30bn a year.

The assessment prompted a fresh warning from the chancellor, Philip Hammond, to Brexiters calling for a “harder” exit from the EU.

“The report that the OBR have published this morning shows that even in the most benign version of a no-deal exit there would be a very significant hit to the UK economy, a very significant reduction in tax revenues and a big increase in our national debt – a recession caused by a no-deal Brexit,” Hammond said in a Reuters interview.

“But that most benign version is not the version that is being talked about by prominent Brexiteers. They are talking about a much harder version which would cause much more disruption to our economy and the OBR is clear that in that less benign version of no deal the hit would be much greater, the impact would be much harder, the recession would be bigger. So I greatly fear the impact on our economy and our public finances of the kind of no-deal Brexit that is realistically being discussed now.”

The OBR estimated that the recession – caused by the impact of increased uncertainty and falling confidence on investment and trade – would be as bad as that suffered in the 1990s but only a third as bad as the slump at the time of the financial crisis of the late 2000s.

Play Video 1:02 Philip Hammond says he 'greatly fears' impact of no-deal Brexit – video

In its fiscal risks report, the OBR said its assessment was “relatively benign” because it was based on the less gloomy of two scenarios produced by the International Monetary Fund earlier this year. A worst-case scenario sketched out by the Bank of England last November estimated that the economy could shrink by as much as 8% in an even deeper recession than that of 2008-09.

However, the OBR – established in 2010 to provide independent forecasts for growth and the public finances – said the outcome would be worse if a no-deal, no-transition Brexit also resulted in chaos at the border.

Q&A What is the Office for Budget Responsibility? Show Hide The Office for Budget Responsibility is the government’s independent forecaster, which gives its verdict on the outlook for growth and the public finances twice a year. The forecasts are published to coincide with the chancellor’s two big set pieces of the year – the autumn budget and the spring statement – and takes into account the impact of any tax and spending measures announced in those statements. The OBR also uses its public finances forecasts to judge the Treasury’s performance against the chancellor’s fiscal targets, stating whether or not it has a greater than 50% chance of hitting the targets under current policy. It was established in 2010 by the then chancellor George Osborne with the aim of improving the credibility of the government’s official forecasts for growth. The forecasts were previously produced by the Treasury itself and often criticised for being unrealistic. The OBR is led by three members of the budget responsibility committee, including chairman Robert Chote, a former director of the Institute for Fiscal Studies, with support from the OBR’s permanent staff of 27 civil servants.

“A more disruptive or disorderly scenario could hit the public finances much harder,” the OBR added.

Even so, it said the shock of a no-deal departure would be enough to push the economy into recession in the fourth quarter of 2019. It would result in Gross Domestic Product – a measure of the economy’s output – falling by 2% by the end of 2020. Ultimately, GDP would be 4% lower by the middle of 2021 than the OBR anticipated when it produced forecasts for Hammond’s spring statement.

Asset prices would also take a hit, with the watchdog pencilling in a 5% fall in share prices in the final three months of this year, a near-10% drop in house prices between the start of 2019 and mid-2021, a 20% fall in residential property transactions by the end of 2020 and an increase in annual public borrowing and the national debt.

The OBR said it was assuming that the Bank of England would seek to support the economy by cutting interest rates to about 0.2% by the end of 2020. Sterling would fall by 10% immediately – taking it to about $1.10 against the US dollar.

Speaking at a press conference to launch the report, the OBR chairman, Robert Chote, said: “The big picture is that heightened uncertainty and declining confidence deter investment, higher trade barriers with the EU weigh on domestic and foreign demand, while the pound and other asset prices fall sharply.

“These factors combine to push the economy into recession.”

Until now the OBR had been assuming there would be a smooth Brexit when coming up with its forecasts but it said the willingness of Boris Johnson and Jeremy Hunt to contemplate a no-deal departure meant it was stress-testing alternative scenarios.

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Chote also warned Johnson and Hunt that the spending pledges made during their campaigns to be prime minister came at a cost. He said the two contenders to replace Theresa May had made a series of uncosted proposals for tax cuts and spending increases that would be likely to raise government borrowing by tens of billions of pounds. “There is no war chest that would make them a free lunch,” he said.

Nicky Morgan, the chair of the House of Commons Treasury committee, has written to the Treasury and the Bank of England asking for updated analysis of Brexit under different scenarios. “This will ensure that parliament is as informed as possible as it considers key decisions about the future of our country,” she said.

John McDonnell, Labour’s shadow chancellor, said: “It’s obvious the Conservative party constitutes a clear and present danger to the economy and the wellbeing of everyone in the UK.”