Britain will be left worse off under all economic scenarios after Brexit, according to a leaked government analysis, with financial services, manufacturing and retailing among the industries worst hit. The document is expected to strengthen the hand of cabinet ministers pushing for a soft Brexit after March 2019, led by chancellor Philip Hammond, and the analysis was attacked by Brexiters.
The leak unleashed a blame game inside the government as to who was responsible for the analysis. Downing Street refused to disclose which Whitehall ministry had initiated the document, saying it was the product of a cross-departmental exercise. The paper, entitled EU Exit Analysis — Cross Whitehall Briefing and dated January 2018, looks at three of the most plausible Brexit scenarios. It was obtained by the online news and entertainment company Buzz Feed.
The analysis suggests a “no deal” scenario, under which Britain reverts to World Trade Organization rules, would reduce UK economic growth by 8 percentage points over the next 15 years compared with current forecasts. It says that under a free-trade agreement with the EU, growth would be 5 percentage points lower over the same period. The soft Brexit option of continued Norway-style access to the EU single market through membership of the European Economic Area — an arrangement ruled out by prime minister Theresa May — would lower growth by 2 percentage points. The analysis suggests Britain would suffer a larger hit to growth in the event of a so-called hard Brexit compared to a forecast produced by the Treasury before the 2016 referendum on EU membership. However, there would be a smaller hit in a soft Brexit. The Treasury’s 2016 document, dubbed Project Fear by the Leave campaign, said the WTO option was forecast to hit growth by 7.5 percentage points, compared to 6.2 percentage points with a free-trade agreement, and 3.8 percentage points with a Norway-style single market deal.
With the new analysis, a trade deal with the US is concluded in all the Brexit scenarios, offsetting some of the lost business with the EU when Britain leaves the single market and customs union. Mrs May is hoping to negotiate a deal with the EU that is somewhere between a traditional free-trade agreement and a Norway-style single-market deal, and there is no modelling for this outcome in the analysis. The paper acknowledges the risk to London’s status as a leading financial centre posed by Brexit. Every UK region would also be negatively affected in all the scenarios, with the north-east of England, the West Midlands and Northern Ireland facing the biggest impacts. Steve Baker, a minister at the Department for Exiting the EU, said the BuzzFeed article was a “selective interpretation of a preliminary analysis”, and “an attempt to undermine our exit from the European Union”. He added the government would release an “appropriate analysis” of the impact of Britain leaving the EU before MPs vote on the final Brexit deal. Mr Baker said he had not seen the leaked paper until Tuesday, adding: “It has not been led by my department.” However, government officials said work relating to the document began in August at the behest of a steering group chaired by a Dexeu civil servant. Dexeu denied this.
The Treasury denied that it was the “driving force” behind the paper. Recommended FT View: A vacuum in the UK cabinet puts Brexit transition at risk Janan Ganesh: Ditching May will fail to alter the course of Brexit Nick Clegg: Jacob Rees-Mogg is right, Britain risks vassal status Iain Duncan Smith, the former Conservative leader, told the BBC the analysis should be taken “with a pinch of salt” and that the timing of the leak was “highly suspicious”. Meanwhile Bank of England governor Mark Carney said he hoped for a rise in business investment next year once Brexit uncertainties were resolved. “My impression of UK businesses is that they are looking for greater certainty and there should be a pick-up in investment in 2019,” he added. Mr Carney said he understood there would be negative Brexit effects on the economy this year from uncertainties and from lower real incomes. “It is understandable our businesses are waiting to see what the future relationship [between the UK and the EU] is,” he added.
Source: Financial Times
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