Eurfyl ap Gwilym presents an analysis of what the recent cross-Whitehall briefing of the possible impact of Brexit means for the Welsh economy

The cross-Whitehall analysis of the possible impact of Brexit on the UK economy, a report which the UK Government sought to keep under wraps, was leaked on Buzz-Feed News in January. The report contains few surprises but is noteworthy insofar as it is an analysis by the civil service and shows that almost every sector of the economy in every nation and region of the UK will be worse off as a result of the UK leaving the EU. As noted by the authors, given the continuing uncertainty surrounding Brexit and the fact that the study looks ahead fifteen years, too much emphasis should not be placed on the precise numbers arising from the forecasts made but the relative outcomes corresponding to the three scenarios they postulate are of value. No doubt further refinements will be made to the analysis in due course. The report may well inform the negotiating approach of the UK Government.

Trade Scenarios.

The study centres on three possible trade scenarios:

  • membership of the European Economic Area (EEA);
  • a free trade agreement (FTA); and
  • operating under World Trade Organisation (WTO) rules.  

A scenario in line with Theresa May’s Florence speech is specifically excluded. The Florence scenario is described as an ‘unprecedented, ambitious and comprehensive economic partnership’.

A challenge in any analysis is how to quantify the potential impact of non-tariff barriers (NTBs). NTBs may include: import quotas and licensing; technical standards and norms; requirements for labelling and packaging; pre-shipment inspections; and rules of origin. This is particularly relevant given that NTBs are expected to have a more material impact than tariffs. In many debates regarding Brexit too much attention is paid to tariffs and not enough to NTBs which industry agrees are more important particularly in the world of extended, international supply chains.

Impact on GDP Growth.

The base case estimated growth in UK GDP over the next 15 years is 25 per cent in real terms (equivalent to growth of 1.5 per cent per year). This level of growth is anaemic both in historical terms and compared with other economies but is in line with the shorter-term forecasts made by the independent Office for Budget Responsibility on which the Chancellor’s Spring Statement 2018 was based. The estimated reduction in growth arising under the three scenarios will be: 1.6 per cent lower under EEA rules; 4.8 per cent lower under an FTA; and 7.7 per cent lower under WTO rules. In each case a tolerance is added to the estimate and it must be recognised that given the uncertainty of economic forecasting over such a long period, it is the relative cuts to GDP rather than the absolute levels that are relevant. The relative ranking of these impacts should come as no surprise. Proponents of Brexit may well claim that a reduction of even 7.7 per cent of GDP over fifteen years is not that material although it represents a cut in the annual growth rate from 1.5 per cent to 1.1 per cent. To put such a cut in perspective, 7.7 per cent of UK GDP is, in real terms, £158bn and such a reduction would lead to a loss of ~£60bn per year in government revenue (this is almost double the £38bn hit George Osborne’s Treasury estimated in the run-up to the referendum).

It should be noted that the impact of Brexit under the scenarios postulated stretch out over fifteen years i.e. the losses due to Brexit will not be a short-term shock but a longer-term erosion of economic growth with the worst case of the three scenarios cutting the annual UK growth rate over fifteen years from 1.5 per cent to 1.1 per cent per year.  The key measure of GDP per capita will grow even more slowly.

Sectoral Impact.

The report’s authors undertook a sectoral analysis. Manufacturing including cars and motor components are among the sectors most hard hit whereas services, including financial services, suffer far less of a reduction. As will be seen later such sectoral differences will have important implications for the different nations and regions of the UK.

Balances of Trade.

The importance of the UK as a recipient of exports from various EU member states is set out in Table 1. It is particularly noteworthy that for the larger and more politically influential EU economies (Germany, France, Italy) the UK accounts for far less than 10 per cent of their exports. On the other hand, the 27-member states of the EU account for 49 per cent of UK exports (we know that in the case of Wales the figure is 67 per cent). These data undermine the claims by Brexiters that the EU27 stands to lose as much trade as the UK from any hard Brexit deal.

Table 1: Proportion of goods and services traded by EU27 member states with UK or by UK with EU (Slide 24 of Cross-Whitehall report, January 2018).


UK trade with EU 49%
German trade with UK 7%
France trade with UK 7%
Italy trade with UK 5%


Trade with non-EU states.

Another striking part of the analysis is the estimate of the potential for increasing exports to non-EU countries in future years. It is estimated that the US could account for an additional 0.2 to 0.7 per cent of GDP (the US currently accounts for 15 per cent of UK trade). With an ‘ambitious FTA Agenda’ it is estimated that having FTA arrangements with:  ASEAN (Association of Southeast Asian Nations); the GCC (Gulf Cooperation Council); China; India; Australia; and New Zealand would increase UK GDP by between 0.1 per cent and 0.4 per cent of GDP in the long term. These are surprisingly low estimates, but tariffs currently imposed are already low in most areas and FTAs do not significantly reduce non-tariff barriers. These estimates undermine the arguments of those who see the rest of the world excluding the EU as the ‘sunny uplands’ of the future for UK trade.

Potential impact on Wales and other nations and regions of the UK.

Table 2 sets out the report’s mid-range estimated cuts to GDP under the three scenarios for some of the by regions and nations of the UK. The authors estimate that possible gains from trade with non-EU states is more than off-set by losses to trade with EU states.

Table 2: Estimated mid-range estimates of cuts to GDP over fifteen years (The numbers set out in the table are interpolated from the chart on Slide 23 of the Cross Whitehall Report)


Trade Deal.  Wales   Scotland   London       UK
EEA type -1.8%    -2.5%    -0.6%    -1.5%
FTA type -5.5%    -5.9%    -1.8%    -4.8%
WTO mitigated -10.0%    -9.3%    -3.2%    -7.8%


Again, given the imprecise nature of longer term economic forecasts too much weight should not be attached to the absolute numbers: what merits attention are the relative reductions in GDP and these are principally driven by the different sectoral profiles of the regions and nations of the UK. London, with its reliance on business and financial services will prove resilient whereas Wales, with a much higher proportion of its exports going to the EU and its reliance on manufacturing sectors such as automotive, stands to lose more. Given the sectoral differences it is vital that the interests of Wales and other parts of the UK are not sacrificed to protect the interests of the financial services sector and in particular the City of London. It is to be hoped that the Welsh Government will undertake a detailed analysis of the Cross-Whitehall Report and use it as a basis for pressing the UK Government as it formulates its approach to international trade after Brexit.


The articles and documents hosted on Click on Wales are subject to IWA’s disclaimer.


Dr Eurfyl ap Gwilym is Plaid Cymru's Chief Economic Advisor and an IWA Board Member.


  1. The impact of Brexit on Wales. Well firstly Mess-Minster should stop infighting and try to pull together in the interest of all of the UK. I think we all know that’s not going to happen. Mess-Minster will carry on sleep walking to Brexit. May is too weak to control the Tory fractions, Boris keeps making embarrassing comments. His latest that Porton Down had confirmed that the poison used in the recent attack was definitely from Russia has been denied by, of all places, Porton Down. It seems daily May has to deny comments attributed to her by Boris.

    Now they are going at each other because our new passports will be made in France. The Daily Mail seem to devote whole issues to that.

    The UK is the slowest growing of the G7. But the UK relies on the city and the financial sector. It’s the only region of the UK and England that actually money, the rest of the UK and England depend on the city. Mess-Minster will throw everyone under the bus to protect the city and their passport rights.

    I don’t care what colour our passport will be or where its printed, we should just be concerned about the economy,the rest will follow

  2. I am glad Eurfyl has highlighted the non tarif barriers. For most tariffs devaluation can mitigate their cost but the non tariff barriers are much more difficult to overcome. Inspection can slow movement, be very costly and in extreme have checked components not the previously completed item delivered to the end user.

  3. Should be read in conjunction with David Davis’ letters stating why it was not in the national interest to release this questionable work in progress which was eventually published in March –

    Meanwhile we have an alternative economic outlook:

    If Wales does suffer disproportionately all I can say is it had it coming – billions of public money have been squandered on destroying continuity of everything with England, and on white eliffants and vanity projects which mostly looked doomed to fail and haven’t disappointed in that regard. Mostly money that could have been used to put the economy on a sounder footing. Since it seems the political class in Wales has learned nothing from these failures then disproportionate suffering is a reasonable outcome in the circumstances. The only issue is trying to make sure the victims, the people of Wales and beyond, are made aware of who is responsible for this failure and that most of it is self-inflicted. It’s also difficult to see how there can be a period of damage limitation with same clowns in charge when their only obvious remedy for failure is more of the same!

  4. Having read the complete paper, it is hard not to sympathise with the civil servants given the task of quantifying the unquantifiable. Their conceptual analysis is actually rather good. They were probably reluctant to put figures to it and cannot be blamed for erring on the side of caution.

    Nor can they be blamed for some of the media reporting which focused on the headline figures without really explaining what they meant. All credit to Dr ap Gwilym for making it clear that we are not talking about negative growth but a possible reduced rate of growth spread over an arbitrarily long period.

    If one looks at it from a microeconomic point of view, any effects are likely to be over a much shorter term. The tariffs on most non-agricultural products have already been negated by the devaluation, while most properly managed companies have been preparing since 2016 for the more serious effects of the non-tariff barriers which will be no more of an obstacle than they are at present in the non-EU states with whom we are trading already. They add to the hassle of exporting but rarely prevent it. WTO rules prohibit anything that looks like retaliation.

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