The head of the civil service in Northern Ireland has warned against complacency over political limbo as an official report predicts that 40,000 jobs are at risk in the region in the event of a no-deal Brexit.

David Sterling was accused of engaging in “operation fear” in March by a Brexiter Conservative MP after warning of the “grave” consequences for the region.

On Wednesday he said he had “developed a thick skin” in the face of such criticism but that those fears still held.

“Our assessment is that no deal would have a profound and long-lasting impact on Northern Ireland and society, a point I made back in March and it remains valid today,” said Sterling speaking at the Institute for Government in London.

He said the uncertainty over Brexit was now affecting investment, with the latest local Purchasing Managers Index data showing the “strongest reduction in output since September 2012”.

He also said there would be an increase in smuggling on the border and community relations in those areas could deteriorate.

No deal “could change the attitude in communities, which over time could have an impact in the culture of those areas”, said Sterling.

In a wide-ranging talk he also said the political impasse in Northern Ireland was not something the region could ignore.

“While tensions around parades had been in decline and there was “less street disorder” there were “other societal tensions that are probably the result of the political impasse.

“We wouldn’t want to overstate it but at the same time I wouldn’t be complacent … it would wrong to be complacent and think this will be the same for evermore.”

Asked what police would be deployed to the border on 1 November in a no-deal scenario, he said: “The Police Service of Northern Ireland assessment has been and remains that new infrastructure on the border would be at risk of attack by republicans.”

He said the absence of Stormont has meant “we have lacked that ministerial voice in Whitehall that has championed the cause of Northern Ireland”.

Earlier on Wednesday the Northern Ireland Department for the Economy issued a report on investment under no deal warning it could “lead to a sharp increase in unemployment with at least 40,000 jobs at risk”.

The report said the impact of EU tariffs and non-tariff barriers would mean that whatever the Irish government and the EU do “many businesses will no longer be able to export to the Irish market, leading to a major reduction in NI’s exports to Ireland”, it said.

Sterling warned that while some economic indicators such as employment and tourism were good in Northern Ireland it also suffered from low productivity, low wages, youth unemployment and high numbers of people who were economically inactive.