Modelling the Economic Impact of Brexit on the Welsh Economy

We provide an impact assessment of Brexit using a dynamic Computable General Equilibrium model. Three scenarios are considered: (a) no deal with the EU i.e. revert to WTO scenario in March 2019; (b) agree an extension to Article 50 between the UK and EU a status quo scenario; (c) negotiate a comprehensive EU-Canada style trade agreement between the EU and UK. We did not examine the option of EEA membership as this would cut across the UK Government’s red lines as announced in the Prime Minister’s Lancaster House speech. Our results show that the impact on the Welsh economy will be felt primarily through reductions in GDP, GDP per capita, trade, investment and employment. In sum, Wales loses under all scenarios, but with smaller losses under the status quo scenario. Continuation of an extended status quo for a limited period of time is the best policy option. A comprehensive EU-Canada style trade agreement is the next best option. Reverting to trading on WTO terms should there be a No Deal between the EU and UK, i.e. the two-year Article 50 process comes to an end without an agreement, will generate the highest losses.