Even without considering the implications of Brexit, the UK economy is in dire straits.

The Bank of England said earlier this month that the economy could shrink by 14% this year. That would be the biggest annual contraction since a decline of 15% in 1706, based on the bank’s best estimate of historical data. GDP could fall by 25% in the three months to the end of June.

Data released by the UK government in recent days has been harrowing. Claims for unemployment benefits soared by 69% to almost 2.1 million last month. Inflation in April, meanwhile, declined for its third consecutive month to 0.8%, raising concerns that prices could be entering a damaging downward spiral.

Restaurants and non-essential shops remain closed, and economists aren’t confident that activity will pick up right away once they reopen.

Gilts, as they’re known, are considered a safe-haven asset, alongside US, Japanese and German government bonds; elevated demand signals that investors are worried economic growth will remain depressed.

“The markets are reflecting the economic reality, which is that the economy has collapsed,” said Robert Wood, chief UK economist at Bank of America.

Attempting to stem the vast economic damage, the UK government borrowed £62.1 billion ($75.7 billion) in April, the highest level since records began in 1993. The government now projects it will need to borrow £298.4 billion ($363.3 billion) through March 2021, almost twice as much as at the height of the global financial crisis.

“What the Bank of England has done is remove the floor on policy rates, so you can’t assume they will definitely not cut” below zero, Wood said. “That said, clearly negative rates are one of the last resorts here.”

Brexit clock ticking

The risk they may be needed is rising because UK Prime Minister Boris Johnson has committed to nailing down the terms of the UK’s new relationship with the European Union by the end of 2020, following its exit from the bloc in January.

Failure to reach an agreement could subject UK companies to steep new tariffs, threaten their supply chains and make their products and services more expensive at the worst possible moment. The United Kingdom has until June 30 to ask for an extension to the deadline, but the Johnson government has consistently said it does not want to do this.

Talks are not going well, however. Michel Barnier, the EU’s chief Brexit negotiator, said last week that he was “not optimistic” about reaching a deal with the United Kingdom, adding that the EU will step up preparations for the year to end without new terms of trade in place.

The UK’s chief Brexit negotiator, David Frost, said in a letter to Barnier on Tuesday that the EU was offering up “a relatively low-quality trade agreement.”

Pickering of Berenberg Bank is concerned that the running clock on Brexit talks could create problems for the United Kingdom in the second half of the year, when economic growth is meant to be picking back up.

Household spending, which makes up around 70% of GDP in the UK, will determine the trajectory of the UK’s recovery, he said. As the lockdown ends, the worry is that Britons will keep saving their money due to anxiety about their jobs or a second wave of infections, limiting the impact of government and central bank relief efforts.

Even if the United Kingdom does reach a new trade agreement with the European Union, it won’t be as favorable as the old regime. Johnson is pushing for a deal that would allow the United Kingdom to also strike an agreement with trading partners such as the United States.

In the draft proposal released by the UK government this week, Britain reaffirmed that it does not want to be part of the EU single market, and is instead seeking a deal in line with what the bloc has in place with Canada or Japan.

“Worsening your trade terms with the destination for nearly half your exports will be an economic negative,” Bank of America’s Wood said. “[It’s] another reason to expect the recovery from this crisis to be a very elongated U [shape], and not a V.”

Irish Prime Minister Leo Varadkar echoed this view on Thursday.

“Brexit will further complicate matters,” Varadkar said. “As I said a few months ago, Brexit’s not over. It’s only halftime.”