A no-deal Brexit will damage sectors helping the battered economy recover from coronavirus, the UK’s fiscal watchdog has warned.
The Office for Budget Responsibility (OBR) said industries such as manufacturing, financial services and agriculture would be hammered by leaving the EU without a trade deal.
It comes after the watchdog predicted no deal would wipe an additional 2% off the UK’s economic output, on top of a predicted 4% hit to GDP even if a trade deal is agreed.
MPs were told that the economic devastation of no deal would be “widespread”, meaning few sectors would be spared from the damage.
OBR chief Richard Hughes told the Commons Treasury Committee: “Covid affects the non-tradeable sectors of the economy, whereas Brexit affects the tradeable goods sectors.”
He added: “Were we to leave the EU without a deal, these are the sectors that would be hit hardest by the fact they lose access to a very important market to them, which is the EU.”
OBR member Sir Charlie Bean said the Brexit shock “requires further restructuring of the British economy”.
“Some parts that are no longer so profitable will have to downsize, other areas will need to expand as a result of the changed terms of trade with the European Union,” he said.
“People will lose their jobs in their declining industries before the new jobs are created in the ones that will expand, so there will be a period where unemployment needs to rise temporarily alongside that necessary restructuring.
“That’s pretty much unavoidable with something like Brexit.”
Meanwhile, the Organisation for Economic Co-operation and Development warned the UK economy would suffer a "serious" short-term hit from a no-deal Brexit alongside the impact of a second wave of coronavirus.
The OECD said the resurgence of the pandemic comes at a "historic and critical moment" for the UK as end of the Brexit transition period looms in December.
In its latest economic outlook, the OECD said: "The failure to conclude a trade deal with the European Union by the end of 2020 would entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term.
"By contrast, a closer trade relationship with the European Union than expected, notably encompassing services, would improve the economic outlook in the medium term."
Elsewhere, Shadow Chancellor Anneliese Dodds warned that the UK was facing a “thin-as-gruel” trade deal if a last-ditch agreement can be made.
She told the Commons: “The OBR says that would lead to a long-run loss of output of around 4%, that’s on top of the slowest recovery from Covid in the G7 - as predicted by the OECD today.”
Chancellor Rishi Sunak replied: “I wouldn’t want to pre-empt the outcome of the ongoing talks, which are constructive and proceeding with full intensity - and I’m very hopeful they can reach a positive conclusion.”