The institute’s no-deal forecast was less severe than the 8 per cent contraction modelled by the Bank of England

Britain will avoid recession in a no-deal Brexit as the government launches a £40 billion emergency stimulus package and the Bank of England ignores surging inflation to keep interest rates on hold, according to the National Institute of Economic and Social Research.

The think tank said policymakers would respond to a no deal with tax cuts and welfare spending amounting to around 2 per cent of GDP, blowing a fresh hole in the budget deficit. Even if no action is taken recession will be averted, although the economy will stagnate with growth just above zero for two years.

The scenarios were set out in the institute’s quarterly forecast, in which it downgraded UK growth sharply for next year and warned that the chancellor would break