The Bank of England has claimed that a "disorderly" exit from the European Union would plunge the U.K. economy into a worse economic contraction than that experienced after the global financial crisis of 2008.
The BOE made the claim in its assessment of different scenarios related to the U.K.'s withdrawal agreement from the EU, published Wednesday.
In the worst case scenario, unemployment rises to 7.5 percent, house prices fall 30 percent, and the economy shrinks by around 8 percent over the course of a year. This would exceed the 6.25 percent contraction experienced during the crisis.
In this "disorderly" scenario, the U.K. "loses existing trade arrangements that it currently has with non-EU countries through membership of the EU." The bank added that "the U.K.'s border infrastructure is also assumed to be unable to cope smoothly with customs requirements."
The bank also outlined the impact of a "disruptive" Brexit scenario that would see unemployment rise to just below 6 percent.
"In the disruptive scenario, tariffs and other barriers to trade between the U.K. and EU are introduced suddenly. No new trade deals are implemented within the five-year period, but the U.K. replicates deals acquired by virtue of EU membership," the assessment said.
Shortly after the report's release sterling rose against the dollar, but that move was viewed as a reflection of a weakening dollar, following dovish comments from the U.S. Federal Reserve Chair Jerome Powell.
Earlier Wednesday, the British government released its assessment that under Prime Minister Theresa May's Brexit plan, the U.K. economy could be up to 3.9 percent smaller after 15 years. The same report put the impact of a no-deal Brexit at minus 9.3 percent.
The BOE also unveiled its latest stress test results on U.K. banks. There's been a special focus on these institutions as the U.K. gets ready to leave the European Union in March.
The BOE said all banks had passed the stress tests and none would have to curb lending should there be a "disorderly" Brexit.
The financial system will have to make provisions to prepare for potential economic shocks, in case the U.K. economy is dented by the decision to leave the European Union.
Royal Bank of Scotland (RBS) announced in October that it had set aside, as an impairment provision, £100 million ($128 million), in order to account for economic uncertainties — Brexit being the biggest concern for the British lender.
There is also a special market focus on Barclays and Lloyds, given they were the worst performers in European-wide stress tests.
The European Banking Authority (EBA) said earlier this month that all 48 banks beat the common tier ratio of 5.5 percent under adverse stress. But Barclays ranked lowest in the test, scoring a common tier ratio of just 6.37 percent in the adverse scenario. And Lloyds hit a score of 6.8 percent in the same conditions.