No-deal Brexit could cause 6% reduction in UK house prices

UK house prices could drop by 6.2% next year if the UK leaves the EU without a deal on 31 October, according to accountants KPMG.

However, if a deal is reached, KPMG predicts that house prices will rise by 1.3%.

London will probably see a fall in prices with or without an exit deal this year and next, it said, with sharper declines if no deal is reached.

However, the low supply of new housing stock could prop up prices over time.

“Overall, while a no-deal Brexit could dent property values in the short term, it may make less impact on one of the fundamental factors driving the market: the stock of regional housing,” said the report.

“Housebuilders are expected to reduce the supply of new housing in some regions in the short term as a response to a deteriorating economic outlook.

“So, while there will be fallout from the initial economic shock following a no-deal Brexit, the market is expected to recover most ground in the long run,” it said, assuming the economy recovers.

Given that the housing market is hard to predict, KPMG said prices could see steeper falls – of perhaps 10-20% – in a no-deal scenario.

“Transactions volumes will likely fall much more than prices – making government housing delivery targets impossible to achieve and slowing new building across the sector,” said Jan Crosby, UK head of housing at KPMG.

Assuming no agreement is reached, KPMG says Northern Ireland will be the hardest hit next year, with average price declines of 7.5%, followed by London at 7%. The least-hit will be Wales and the East Midlands, with 5.4% declines apiece.

This year, most regions will see changes of less than 2%, KPMG says, with the exception of London, down 4.8%, and Northern Ireland, down 2.2%.

If a deal is struck, prices in London and Northern Ireland are still predicted to fall this year, by 4.7% and 1.2%, while most other regions will be largely unchanged. Scotland and the North West will see gains of 1.4% and 1.6%.

And next year, all regions will gain aside from London’s predicted 0.2% slide. The average increase will be 1.3%.

KPMG noted that the UK housing market is healthier than it was at the time of the last housing crash – when prices fell by 15% in 2008. House prices are lower as a percentage of earnings in most regions outside London and the South East.

In addition, compared with the aftermath of the 1991 recession – when housing prices dropped 20% over about four years – mortgages are much cheaper. Back then, the Bank of England’s base rate was about 14%.

Bank of England cuts UK growth forecast and warns over no-deal Brexit

The Bank of England has cut its forecasts for UK growth over the next two years and also warned that a no-deal Brexit would hit the economy and trigger a further drop in the value of the pound.

The Bank left interest rates unchanged at 0.75% against a backdrop of weaker global growth and ongoing trade tensions between the US and China.

It said the UK economy was expected to grow by 1.3% this year, down from a previous projection of 1.5% in May.

The Bank also cut its outlook for growth in 2020 to 1.3%, from a previous projection of 1.6%.

The forecasts are based on the assumption that the UK leaves the EU with a Brexit deal – however it suggested growth could be much slower in the event of no deal.

Why has the Bank cut its forecasts?

The Bank’s Monetary Policy Committee (MPC) that sets interest rates said the UK was likely to have stagnated in the three months to June.

Its quarterly Inflation Report predicted only modest growth in the coming months due to ongoing uncertainty over the UK’s future relationship with the European Union.

It said there was a one-in-three chance that the economy will shrink at the start of next year, with global trade tensions also weighing on the UK outlook.

And it said there had been a “material and broad-based slowdown” in world growth since the end of 2017.

How is Brexit affecting business?

The Bank said UK economic growth was “likely to remain subdued over the coming year, with Brexit-related uncertainties weighing on spending to a greater extent than in May”.

Its latest survey of businesses showed that 90% of them had implemented contingency plans ahead of a previous March Brexit deadline.

Three quarters of respondents said they were also “as ready as they can be” for a no-deal scenario.

However, the Bank warned that “material risks of economic disruption remain”.

It noted that 240,000 businesses that currently trade solely with the EU were not ready for sudden EU border inspections in the event of no deal.

Many others did not have the right documents to keep selling to the EU if the UK left the bloc without a deal.

BMW pleads with Prime Minister to rule out no-deal Brexit

The chairman of BMW has warned Boris Johnson no-one would win from a no-deal Brexit and urged the new Prime Minister to listen to business.

Harald Krueger said leaving the EU without a deal would be “lose-lose” for the UK and industry.

Mr Krueger advised Mr Johnson: “Listen to the economy and listen to the people. He needs to be in a dialogue with business.

“I would visit Johnson to tell him this,” he added.

BMW warned earlier this year that if the UK leaves the EU without a deal it would threaten production of the Mini which is produced at its Cowley plant, near Oxford, where it employs 4,500 people.

BMW is one of a number of car companies that have expressed concern about leaving the EU without a trade deal.

This week, Vauxhall-owner PSA said it could move all production from its Ellesmere Port site, where it builds the Astra, if Brexit makes it unprofitable.

Such a move would put 1,000 jobs at risk.

BMW closed its Cowley plant for a month in April after planning for the original Brexit deadline of 29 March.

However, last month it committed to begin building its new electric Mini at the site in November.

In his previous role as foreign secretary, Mr Johnson last year allegedly used an expletive when discussing business concerns about a hard Brexit at an event for EU diplomats.

When pressed about using the word, Mr Johnson refused to deny the claim and said he may have “expressed scepticism about some of the views of those who profess to speak up for business”.

Mr Johnson has said the UK will leave the EU by 31 October, with or without a deal.

Recent figures reveal investment in the UK car industry has fallen sharply to £90m in the first six months of this year compared to £347m in the first half of 2018.

The Society for Motor Manufacturers and Traders said, however, that companies’ spending on contingency plans for a possible no-deal Brexit had now reached £330m.

Mr Krueger made his comments after BMW reported a 28% drop in pre-tax profits for the second quarter of the year.

The firm attributed this to investing heavily in electric car production and said it still expected to hit its financial targets for 2019.

Government announces £500m plan to help farmers hit by no-deal Brexit

Ministers are working on a no-deal Brexit plan for farming in which the government would step in and buy slaughtered livestock at set prices in the event of a collapse in European demand because of high tariffs.

Boris Johnson travelled to Wales today and pledged that British farmers would be better off if the UK left the European Union at the end of October even if it were without a deal.

Under plans being finalised by Michael Gove, the former environment secretary who is now in charge of Whitehall no-deal planning, the government would agree to buy any lamb and beef at the point of slaughter at a pre-determined price.

The commitment, expected to cost the Treasury about half a billion pounds a year, would also cover some arable crops where EU exports might dry up.

Mr Johnson also pledged today to unveil a replacement to the EU’s Common Agricultural Policy that will ensure farmers get a “better deal” than at present.

But farmers’ leaders are concerned that the government scheme may have to last for several years while trade deals are negotiated.

There is also concern that they may never make up for the lack of market access to the EU, which would be hard to win back, even if an eventual trade deal were struck.

The UK beef industry exports about 92,000 tonnes of beef to the EU which will face tariffs of 65 per cent of wholesale value, depending on the category of product. The cumulative cost of beef exports facing EU tariffs is more than £250 million.

EU sheep meat and live animal imports will face tariffs of about 46 per cent, making British lamb exports to Europe uneconomic. Economists have predicted that a no-deal Brexit would depress the market rate for lamb by 30 per cent.

Alun Cairns, the Welsh secretary, suggested that new global markets, including in Japan, would be available to sheep meat producers.

“We are now looking to the growth that will come from right around the world,” he told Today on BBC Radio 4.

“I would point to the market in Japan that has just been opened to Welsh and British sheep, for example, so exports are already taking place there. That is a significant market for which we haven’t even scratched the surface yet.”

However, Liz Saville Roberts, Plaid Cymru’s Westminster leader, pointed out that Japanese market had been opened up to Welsh lamb by the EU-Japan trade deal.

Mr Cairns insisted that as an independent trading nation “there will be these markets and these opportunities there”.

Asked what he would say to those who said were threatening civil unrest if their export markets were destroyed, he said: “New markets have already opened up and there are new protocols in place for additional markets as well.”

Minette Batters, president of the National Farmers’ Union, said the mass slaughter of livestock was “absolutely something that we want to avoid at all costs”, as she queried where lamb products would go if farmers were “tariffed out of the EU market”.

“Trade deals don’t just get picked off the shelf in a couple of months,” she said.

Helen Roberts, development officer for the National Sheep Association (NSA) in Wales, called on Mr Johnson to “stop playing Russian roulette with the industry which he appears to be doing at the moment”.

She told Today: “If we do go out with a no-deal it will be absolutely catastrophic, even if it’s just for a few months.”

Asked about the possibility of civil unrest, including roadblocks and tractor protests, among sheep producers, she said: “I think they will, I think it’s time to come and stand up for ourselves and be counted.”

Future of Vauxhall’s Ellesmere Port factory in grave danger

Boris Johnson is playing “no-deal roulette” with the future of the Ellesmere Port car plant, unions have warned.

Amid reports that PSA, the factory’s French owner, would close it in the event of an unsatisfactory Brexit, leaders of the Unite union said that the prime minister was in danger of undoing talks to bring the next generation of the Vauxhall Astra and other cars to the site in Cheshire.

The plant, which opened in 1962, employed 12,000 workers in the heyday of the bestselling Vauxhall Viva. In 2011 it still employed 3,500 people. However, since PSA, the company behind Peugeot and Citroën, bought the European assets of General Motors — namely Vauxhall and Opel — two years ago, the workforce has dwindled to a little over 1,000. Last year the factory made 77,481 Astras. It has capacity to build 200,000.

Ellesmere Port makes only the Astra and is the company’s sole British carmaking plant. PSA has said already that the next generation of the Astra will be built in Germany from 2021, with Ellesmere Port as a secondary plant. Carlos Tavares, 60, PSA’s chief executive, told the Financial Times that if Ellesmere Port was not profitable after Brexit, he would switch production elsewhere.

Steve Turner, assistant general secretary of Unite, said that there had been positive talks with PSA, but added: “All that hard work is hanging by a thread as Boris Johnson and his government of hard Brexiteers play no-deal roulette with the livelihoods of thousands of Vauxhall workers and their colleagues in the supply chain.”

A spokesman for Vauxhall UK said that work for Ellesmere Port would be conditional on the final terms of the UK’s exit from the European Union . . . PSA has put into place a comprehensive ‘no-deal’ contingency plan.”

CBI says that UK is not ready for a no-deal Brexit in October

The Confederation of British Industry (CBI) has warned the government that neither the UK nor the EU is ready for a no-deal Brexit on 31 October.

“While the UK’s preparations to date are welcome, the unprecedented nature of Brexit means some aspects cannot be mitigated,” said the CBI.

It has published practical steps it says the UK, EU and firms can take.

A government spokesman said the UK has increased the pace of planning for no-deal.

The CBI had previously said leaving the EU with a deal was essential to protect the economy and jobs.

New prime minister Boris Johnson has made Michael Gove responsible for planning a no-deal Brexit.

Mr Gove has said the UK government is currently “working on the assumption” of a no-deal Brexit.

He said his team still aimed to come to an agreement with Brussels but, writing in the Sunday Times, he added: “No deal is now a very real prospect.”

‘Hampered’

The CBI’s report What Comes Next? The Business Analysis Of No Deal Preparations advises what measures businesses can take to reduce the worst effects.

The advice is based on a study of existing plans laid out by the UK government, European Commission, member states and firms.

“And although businesses have already spent billions on contingency planning for no deal, they remain hampered by unclear advice, timelines, cost and complexity,” the CBI says.

“Larger companies, particularly those in regulated areas such as financial services, have well-thought-through contingency plans in place, though smaller firms are less well prepared.”

The report is based on thousands of interviews with firms of all sizes and sectors, including 50 trade associations, covering all areas of the UK economy.

The CBI says that in a no-deal Brexit some 24 of 27 areas of the UK economy would experience disruption.

The UK had been due to leave the EU on 29 March, but former Prime Minister Theresa May asked for an extension and the date was pushed back to 31 October.

A UK Government spokesperson said: “This is a constructive contribution from the CBI, acknowledging the importance of all businesses preparing for no deal on the 31 October.

“While we have done more to prepare than this report implies, since the new Prime Minister was appointed the Government has stepped up the pace of planning for no deal. The Chancellor has confirmed all necessary funding will be made available for vital no deal preparations. This includes funding for a major nationwide communications campaign to ensure that people and businesses are ready.

“Crucially, while there is more to do, the CBI observes that the UK is ahead of the EU in planning for no deal.”

Gove and Javid announce no-deal Brexit now ‘assumed’ by government

The government is now “working on the assumption” of a no-deal Brexit, Michael Gove has said.

Mr Gove said his team still aimed to come to an agreement with Brussels but, writing in the Sunday Times, he added: “No deal is now a very real prospect.”

The prime minister has made Mr Gove responsible for preparing for no-deal.

Treasury sources say they expect more than £1bn of extra funding to be made available later this week for no-deal planning and preparation.

Writing in the Sunday Telegraph, Chancellor Sajid Javid said there would be “significant extra funding” for 500 new Border Force officers and “possible” improved infrastructure at British ports.

Prime Minister Boris Johnson has told Mr Gove to chair no-deal meetings seven days a week until Brexit is delivered, according to the Sunday Times.

Mr Gove said tweaks to Theresa May’s withdrawal agreement – which was approved by the EU but resoundingly rejected by Parliament – would not be enough.

“You can’t just reheat the dish that’s been sent back and expect that will make it more palatable,” he wrote.

He added he hoped EU leaders might yet open up to the idea of striking a new deal, “but we must operate on the assumption that they will not”.

“While we are optimistic about the future, we are realistic about the need to plan for every eventuality.”

Mr Gove highlighted a major flaw of Mrs May’s deal as the Irish backstop plan – a measure designed to prevent the introduction of a hard border on the island of Ireland.

So far the backstop has proved a sticking point in the Brexit negotiations.

A no-deal Brexit would mean the UK leaving the EU and cutting ties immediately, with no agreement in place.

The UK would follow World Trade Organization rules if it wanted to trade with the EU and other countries, while also trying to negotiate free-trade deals.

But with Britain outside the EU, there could be physical checkpoints to monitor people and goods crossing in and out of the UK.

No-confidence vote

Speaking to Sky’s Sophy Ridge, Labour leader Jeremy Corbyn said he would do everything to prevent a no-deal Brexit.

He reiterated his call for a new referendum – insisting he would still hold one if Labour were in power – and said, in the event of a no-deal Brexit, Labour would campaign to remain in the EU.

Mr Corbyn also said he would look at whether to call a no-confidence vote in the government after Parliament returns in September.

Liberal Democrat leader Jo Swinson told Sky that, in the event of a general election, her party’s message would be: “Stop Brexit, stop Boris and start renewing our country.”

Mr Gove is one of several new ministers pressing on with Brexit preparations since joining Mr Johnson’s cabinet earlier this week.

Newly appointed Chief Secretary to the Treasury, Rishi Sunak, told Sky: “We’re turbo-charging preparations for no-deal, that is now the government’s number one priority.”

He said if the EU would not reopen discussions about the Irish backstop plan then “it’s right that we prepare properly, with conviction, and importantly with the financial resources that the Treasury will now supply properly”.

No-deal Brexit puts UK ‘at risk of severe downturn’

Economic growth in Britain has stalled and there is a one-in-four chance that the country is entering into a recession, according to the National Institute of Economic and Social Research.

The think tank said that the outlook was “very murky” and warned of the possibility of a “severe downturn” if Britain leaves the EU without a deal after October 31. The institute said that a no-deal Brexit would “throw concrete” in the wheels of the British economy, knocking 5 per cent off gross domestic product in the long term.

“A no-deal exit will mean a significant halt in economic activity and chronic levels of economic uncertainty,” it said. “There is around a one-in-four chance the economy is already in a technical recession.” A recession is defined as two successive quarters of falling GDP.

Niesr is Britain’s oldest independent economic research institute. Its forecasts for the British economy have performed well in recent years. Last year it ranked in the top third among a list of 30 leading forecasters, each of whom made predictions about GDP, inflation, unemployment and interest rates.

The think tank said the short-term impact of a disorderly exit could be mitigated by a cut to interest rates and more quantitative easing, but these would do little to offset the downturn in the long term. Niesr has forecast that interest rates could fall to 0.25 per cent by the end of this year but they would have to rebound to 1.75 per cent by the end of next year.

It also said the Treasury would have to jettison its fiscal rule that government borrowing should be below 2 per cent of GDP by 2020. The budget deficit would rise to 2.7 per cent of GDP in the event of no deal. Jagjit Chadha, Niesr’s director said: “However we look at it, there will not be much economic joy in a no-deal Brexit.”

The warning comes as Theresa May prepares to stand down as prime minister. Either Boris Johnson or Jeremy Hunt will succeed her. Mr Johnson, the favourite to win the Tory party leadership, has vowed to push through Brexit by October 31 “do or die”, raising expectations of a no-deal Brexit.

Even a smooth Brexit transition would unlock growth of just 1.2 per cent in 2019 and 1.1. per cent in 2020, while inflation would rise to 4.1 per cent. This is because investment and productivity growth remains weak and uncertainties about future trading relationships are likely to last beyond October. The British economy grew by 0.3 per cent in May after contracting by 0.4 per cent in April. Economists believe that second-quarter growth will fall to either zero or -0.1 per cent when the official figures are released next month.

Niesr noted that while Brexit-related uncertainty is holding back business investment and productivity, consumer spending continues to be supported by a strong labour market and sustained wage growth. According to the latest IHS Markit household finance index, consumer confidence rose for a second consecutive month, although still in negative territory, up to 44.3 in July from 43.9 in June.

Niesr’s downbeat assessment extended to the global economy. Citing trade tensions between the US and China, the think tank cut its forecasts for global economic growth to 3.3 per cent this year, the slowest annual growth for a decade.

Philip Hammond plans to resign as Chancellor if Johnson becomes PM

Philip Hammond has announced that he intends to resign as chancellor if Boris Johnson becomes the UK’s next PM.

He said a no-deal Brexit, something Mr Johnson has left open as an option, was “not something I could ever sign up to”.

Asked if he thought he would be sacked next week, Mr Hammond said he would resign on Wednesday to Theresa May.

He said he intends to quit after Prime Minister’s Questions but before Mrs May steps down.

Speaking on the BBC’s Andrew Marr Show, Mr Hammond said it was important the next PM and his chancellor were “closely aligned” on Brexit policy.

Mr Johnson has said the UK must leave the EU by the new Brexit deadline of 31 October “do or die, come what may”.

His leadership rival Jeremy Hunt has said a no-deal exit cannot be ruled out, but he is prepared to further delay Brexit if required to get a new withdrawal deal.

Mr Hammond said the situation “might be more complicated” if Mr Hunt wins the Tory leadership contest, but “all the polling” suggested Mr Johnson would succeed.

“That is what is likely to happen, and I’m making my plans accordingly”, he said, adding he would wait until the result is announced on Tuesday to “see for sure”.

Mr Hammond said he understood committing to leave by this date, even with no deal, would be a condition for serving in Mr Johnson’s cabinet.

He said: “That is not something I could ever sign up to. It’s very important that a prime minister is able to have a chancellor that is closely aligned with him in terms of policy”.

He added that Jeremy Hunt’s position regarding a no-deal Brexit was “more nuanced”, and he had not demanded a “loyalty pledge” on the exit date from prospective ministers.

Mr Hammond said he would support either man in their pursuit of a new Brexit deal, but it would not be possible to agree this before the end of October.

“A genuine pursuit of a deal will require a little longer”, he added.

Mr Hammond has been a prominent critic of the idea of a no-deal Brexit, recently indicating he may vote to bring down the next PM to stop such a scenario.

He had said he could “not exclude anything” when asked whether he would back a motion of no-confidence in the government.

Asked whether he would go against the next PM in a vote of no confidence, he said: “I don’t think it will get to that”.

“I am confident that Parliament does have a way of preventing a no-deal exit on October 31 without parliamentary consent”.

“I intend to work with others to ensure Parliament uses its power to make sure that the new government can’t do that”, he added.

Earlier, Justice Secretary David Gauke reiterated his intention to resign from government should the next prime minister pursue a no-deal Brexit.

Mr Gauke told the Sunday Times: “If the test of loyalty to stay in the cabinet is a commitment to support no-deal on October 31 – which, to be fair to him, Boris has consistently said – then that’s not something I’m prepared to sign up to.”