Britain faces an immediate and prolonged recession with spiking unemployment and inflation if it crashes out of the EU without a deal, a leading credit rating agency has warned.

In its wide-ranging report, Standard & Poor’s (S&P) said a no-deal Brexit could push the UK economy into a recession and lower the economy’s long-term growth potential.

Failure to work out a deal would result in a 5.5 percent decline in Britain’s economy over three years relative to current expectations, and most of the loss would “likely be permanent”, the damning report showed.

Battle of Britain Spitfire Mk I black and white version

It predicts that the British economy will shrink by 1.2 per cent if a deal is not reached. That stands against the growth of 1.3 per cent that it expects if a deal is made.

Though S&P said its base case remains that Britain and the EU will come to some sort of agreement over their future economic relationship, it said it sees an “increasing risk that the UK will secede from the EU and, importantly, the EU single market, without any deal at the end of March.”

When Britain triggered the two-year timetable to leave the European Union in the wake of June 2016 referendum, this October’s summit of EU leaders was meant to be the moment a deal would be reached.

This would have given time for parliaments to pass it into law ahead of the March departure date.

But the summit yielded little amid disagreements on how to make sure a physical border is not re-imposed between EU member Ireland and Northern Ireland.

S&P is clearly worried that in a no-deal scenario, tariffs would be placed on British exports, border checks would be reinstalled, and restrictions could hit travellers and workers.

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Though the same would apply for European products crossing the English Channel, most economists agree that Britain would face a bigger hit proportionately.

“Contingency plans are unlikely to insulate companies fully from market volatility, legal and regulatory uncertainty, border delays, rising input costs and tariffs, and weakening competitiveness and operating performance in many sectors,” the report said.

S&P also warned that crashing out of the EU could see unemployment in Britain spike sharply to 7.4 per cent by 2021 from the current four-decade low of 4 percent.

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It added that inflation would more or less double to 4.7 percent by the middle of next year. House prices, it said, could drop by 10 per cent by 2020 and the average household would be 2,700 pounds worse off in the years 2019-2021.

S&P added that a no-deal Brexit would “likely” see Britain’s credit rating “lowered.”

In his annual budget statement Monday, Treasury chief Philip Hammond conceded that a failure to reach a deal with the EU could lead to a nasty economic reaction.

But he insisted it is expected that a deal will be signed.

The agency’s warning comes as Immigration Minister Caroline Nokes admitted British tourists could face delays at European airports after Brexit.

She said the prospect of UK travellers ending up in “rest of the world” queues is “not unrealistic”.

In a wide-ranging session with the Commons Home Affairs Committee, she also acknowledged that in some cases it could be “almost impossible” for businesses to differentiate between EU migrants who have lived in the UK for years and those who arrive after Brexit.

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