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CEP election analysis

Brexit and UK trade

Executive summary

  • This briefing summarises the evidence about how leaving the European Union (EU) has affected UK trade. Overall, Brexit has had a negative effect on UK trade. But, so far, this effect has been smaller than economists expected.
  • Total UK exports have grown at a similar rate to exports of other European economies since 2016. This is because strong growth in UK services exports has offset a relative decline in UK goods exports. But total UK imports have grown more slowly than the imports of other major economies, driven by slower growth in UK goods imports.
  • In real terms, both UK exports and imports of goods are lower than in 2016, having shrunk by 1% and 2%, respectively.  
  • Focusing on trade with EU countries, the Trade and Cooperation Agreement (TCA) has reduced exports to the EU by around 30% for small firms, but it has had no effect on large firms’ exports to the EU. Many small firms (perhaps around 20,000) have stopped exporting goods to the EU entirely under the TCA.
  • The TCA has also reduced goods imports from the EU as firms have switched to sourcing more imports from non-EU countries. Evidence suggests that the TCA has had a smaller effect on services trade than goods trade. But more research on this question is needed.
  • Brexit is still playing out. The UK continues to deviate from EU policy due to active and passive regulatory divergence, which further increases trade costs for UK businesses.
  • New trade agreements with third countries cannot compensate for the reduced access to the EU’s single market. ‘Global Britain’ as a strategy for international trade is a fantasy.
  • The UK’s proximity to the large consumer and input markets in EU countries will always present the greatest opportunity for trade. The UK therefore faces a basic trade-off: move closer to the EU to increase UK trade and living standards or remain distant from the EU and continue paying the price of new and emerging trade barriers.

17 June 2024     Paper Number CEPEA058

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This CEP election analysis is published under the centre's Trade programme.

This publication comes under the following theme: Brexit, Trade Policy and barriers to international economic integration