The global outlook and recent trends in the UK economy point to significant headwinds for growth going forwards. Arguably the most important determinant of the UK’s economic trajectory will be the continuing process of leaving the European Union. Brexit no longer ‘just’ determines future relations with the UK’s largest trading partner and the transition towards them. It has become intertwined with the political outlook and thus broader economic policies, including monetary policy.

At the time of writing, Prime Minister Boris Johnson’s government has failed to break both the deadlock in negotiations with the EU over the arrangements at the Northern Irish border and the deadlock in parliament over the UK’s wider Brexit strategy. This has left the UK with little clarity on when, how or even whether it will leave the European Union. And, with the increasing chances of a general election in the coming months, the Brexit stance and domestic agenda of the UK’s opposition parties would become relevant to growth in some plausible scenarios.

In this chapter, we set out forecasts for the UK economy under four distinct Brexit scenarios: continued uncertainty (our base case); a no-deal scenario accompanied by significant fiscal loosening; a negotiated Brexit deal passed through the current parliament; or a second referendum on a Brexit deal negotiated by a Labour-led coalition, culminating in a vote to remain. In each case, the impacts on the economy will depend not just on relationships with Brussels, but also on policy decisions made in Westminster.

We find that a ‘no-deal’ Brexit makes for the hardest hit to the economy under these scenarios. By contrast, our scenario for ‘no Brexit’ – which involves a Labour-led coalition government that brings in significant tax and spending giveaways but does not implement all of the more radical structural reforms outlined in Labour’s 2017 manifesto – would, at least for the next three years, provide the most optimistic outlook for growth.

Real GDP growth in the UK under different Brexit scenarios (2019 = 100)

Key findings