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Economists at Scanadanvian financial services provider DNB Bank ASA say they believe the UK will exit the EU on October 31 without a deal, and the UK will likely fall into recession as a result.

This base-case expectation sees DNB - Norway's largest financial services group - warn of further declines in the value of the Pound and a rise in UK inflation.

The 'no deal' Brexit would trigger a shallow recession and a one-off interest rate cut at the Bank of England, taking the base rate back down to 0.5%.

"We expect Boris Johnson’s government to succeed in delivering Brexit as planned at the end of October," says Knut A. Magnussen, an economist at DNB. "However, we do not believe it will be possible to leave with an agreement. A no-deal Brexit would likely slow the economy markedly, while further depreciation of the GBP would lift inflation."

When the Pound falls, the cost of imports rise, leading to higher prices in UK shops that should take the UK's inflation rate well above the 2.0% target set at the Bank of England.

Typically, the Bank would respond to rising inflation by raising the basic interest rate, which in turn supports the value of Sterling. However, it is believed defending economic growth will trump concerns about price rises at this point.

Indeed, economists at DNB believe the Bank of England will view any inflation overshoot to be temporary, "we anticipate the BoE would respond with a 50bp rate cut in November, supported by a new round of quantitative easing," says Magnussen.

The Bank of England engaged in quantitative easing - essentially the printing of money to buy up government and corporate bonds in order to inject money into the economy - following the 2008 financial crisis. It injected £435BN into the economy.

The moves to slash rates and print money following the 2008 crisis saw the Pound-to-Euro exchange rate fall to its lowest-ever value of 1.0294.

Therefore, further rate cuts and money printing will surely only add to the downside pressures on Sterling which would already be feeling the pressures of a 'no deal' Brexit.

"Even though the rising risk of a hard Brexit has weighed on the Pound, we see a potential for further weakening as a hard Brexit would likely push the UK into recession," says Magnussen. "Contrary to the previous downturn caused by the financial crisis, a Brexit-induced recession will likely prove to be a mild one."

DNB estimate UK GDP will drop by 3% more during 2020 and 2021 than under a more benign scenario. This is less than the 4% the UK's Office for Budget Responsibility expects under a disruptive Brexit.

"GDP will mainly be dragged down by reduced foreign trade, a drop in business investments and weaker consumer demand. In our view the latter effect should be relatively mild as households have the opportunity to draw on their savings," says Magnussen.

DNB have lowered their Pound-Euro exchange rate forecasts as a result of the developments, telling clients:

"There are reasons to believe that markets will question the ability of the Bank of England to counter the effects on the real economy, as well as the positive effects on activity from a weaker Pound, as global growth is slowing."

EUR/GBP forecasts at DNB are lifted to 0.97 and 0.94 in three and 12 months, respectively.

This gives GBP/EUR forecast targets of 1.0309 and 1.06 respectively.

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