Research has found that Brexit caused ‘major disruption’ to EU-UK trade.
The study by the London School of Economics (LSE) revealed that both exports and imports were impacted by the UK’s withdrawal from the bloc in 2021, with many British firms stopping trade with the EU.
“A sudden and persistent 25% fall in UK imports from the EU” was found by the study published on Tuesday, compared to “a smaller and only temporary decline in UK exports to the EU”.
But the LSE researchers added there was a “sharp drop in the number of trade relationships between UK exporters and EU importers, suggesting the new trading relationship that emerged in 2021 “caused many UK firms to stop exporting to the EU”.
The UK voted to leave the EU in June 2016, but it did not exit the EU’s single market and customs union until 1 January 2021, when the withdrawal agreement came into effect.
Under the new Trade and Cooperation Agreement (TCA) struck between the pair, UK-EU trade has faced more red tape, customs controls and taxes, impacting both parties.
The study found “no evidence” that Brexit reduced the UK’s trade with the EU relative to the rest of the world before the new trade agreement was implemented.
To disentangle the effect of Brexit from other events, such as the Covid-19 pandemic, the researchers compared the growth in the UK’s trade with the EU to the UK’s trade with the rest of the world, alongside US and EU trade with countries other than Britain.
This allowed them to isolate how Brexit affected UK-EU trade.
The study said “there is no sign that Brexit has led to a sustained change in the geography of UK export values, either following the referendum or after the introduction of the new trade agreement in 2021.
“UK imports from the EU abruptly declined by about 25% more than UK imports from the rest of the world after the TCA came into effect, and this decline persisted throughout 2021,” it continued.
Researchers said it was “surprising” that Brexit had a greater impact on imports than exports in 2021, particularly since the UK delayed the introduction of many customs checks on EU goods until 2022.
However, they said it “would be a mistake to conclude that UK exporters were unaffected by Brexit”.
Their study found the 2021 trade agreement caused the number of UK “export relationships” with the EU to fall by 30%, which they say was due to the ending of “low-value” trade between the EU-UK.
What this means, say the researchers, is that smaller UK exporters stopped selling to the EU as the costs of exporting increased, while larger UK firms which make up the majority of UK exports were not “severely hampered.”
“Although our analysis provides a rich picture of how Brexit has affected UK trade so far,” said the researchers. “Some caveats are in order.”
Notably, they only studied the first year of the new EU-UK trading relationship, hinting that would update their findings as more data became available.