The Bank of England has reiterated its earlier claims of a 30% fall in house prices under a 'disorderly' Brexit scenario. The Bank published its analysis of the Withdrawal agreement yesterday, which included estimates for GDP, house prices, unemployment and inflation in both a 'disorderly' and a 'disruptive' Brexit scenario. In the 'disorderly' Brexit scenario, there is no deal and no transition period which leads to a severe economic shock. The UK loses existing trade arrangements that it currently has with non-EU countries through membership of the EU and there is a pronounced increase in the return investors demand for holding sterling assets.
In this case, the Bank of England has estimated that GDP would drop by 8% and house prices would fall by 30% - worse than in the 2008 financial crisis. It also predicts a 6.5% rise in inflation and a 48% plunge in commercial property prices. The Bank stressed that the 'disorderly' Brexit represented the worst-case scenario and was not simply a forecast for a 'no deal' Brexit. In the disruptive scenario, tariffs and other barriers to trade between the UK and EU are introduced suddenly. No new trade deals are implemented within the five year period, but the UK replicates deals acquired by virtue of EU membership. While the UK recognises EU product standards, the EU does not reciprocate. The EU does not take action to address remaining risks of disruption to financial markets.
Under this scenario, the Bank of England expects GDP to fall by 3%, house prices to fall by 14%, and inflation to rise by 4.25%. However the Bank's statistics have been criticised as being too extreme by some industry experts.