The Swiss bank UBS warns that the rising likelihood of a no-deal Brexit as Prime Minister Theresa May’s deal unravels could see the UK fall into recession next year.

“The risks of a more disorderly situation around Brexit are, literally as we speak, increasing,” UBS’ John Wraith said on Thursday morning.

Such an outcome could both force the UK into a recession and see the pound fall close to parity with the US dollar. That would be a near-20% drop from today’s level.

The pound dropped more than 1.5% against the dollar Thursday morning after key government resignations spooked investors.

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The rising likelihood of a disorderly Brexit as Prime Minister Theresa May’s deal unravels by the minute could end up pushing the UK into a recession and see the pound collapse to near parity with the dollar, a UBS economist warns.

Speaking on Thursday morning just after the resignation of Brexit Secretary Dominic Raab, UBS’ head of UK rates strategy, John Wraith, warned that the likelihood of a disorderly Brexit was materially rising and that such an outcome could both force the UK into a recession and see the pound fall close to parity with the US dollar. (A decline of that magnitude would be a near-20% drop from today’s level.)

“The risks of a more disorderly situation around Brexit are, literally as we speak, increasing, and are very material,” Wraith said at the Swiss banking giant’s offices in London. Raab’s resignation, he said, “has just raised the stakes significantly.”

“The malign scenario, it seems to me, is that Theresa May gets challenged, either now, or having lost the deal in parliament,” he continued. “If she loses her position, all of the other potential risks can crystalize – whether that be a second referendum, a general election, or a change of prime minister.”

Such a scenario, Wraith said, would most likely push the UK into a recession in the second half of 2019.

“The disruption you will get from a shock move from current arrangements to the WTO sort of tariffs and non-tariff barriers we think would be put in place immediately leads us to think that the UK would go into recession next year,” he said.

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That recession would be accompanied by a major fall in the pound, which would see it move close to a level of one to the dollar – often known as parity.

In such a scenario, he said the pound would be worth as little as 1.13 euros, while the euro would reach $1.23.

(Raab noted that such outcomes were not UBS’ base case.)

The pound dropped more than 1.5% against the dollar Thursday morning, as the numerous resignations seen in the past few hours spooked investors.

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Wraith provided a little reassurance, noting that he did not expect any post-Brexit recession to be particularly severe, and nowhere near the scale seen during the financial crisis.

“There’s a reassuring side to it, we think, which is that the UK banking system is incredibly resilient and well capitalized,” he said. “If you look at the stress tests that they all passed, they include way worse scenarios than we envisage in the worst Brexit scenario.”

“If you get a recession, it’s not going to be magnified by a financial sector crisis and a credit squeeze again, like what happened in the financial crisis.

“It’s not going to be a massively deep recession.”