5.2 UK trade and Brexit impact

• EU is UK’s major trade partner, followed by the US
• In 2023, UK trade (exports + imports) was £1.4 trillion with deficit of £47 billion:
  • Surplus on services – £114 billion; deficit on goods – £161 billion
  • Deficit with EU – £99 billion; surplus with non-EU – £52 billion
  • Trade statistics in ‘real’ prices

• Most EU trade is with other EU27 countries
  • Single Market, Customs Union, VAT area and customs cooperation create near-frictionless trade within EU
  • 57.2% of EU27 exports went to other EU27 countries (2022)
  • 4.9% of EU27 exports went to the UK (2022)

• The TCA is inferior to EU membership and creates new trade barriers
  • Brexit trade barriers reduce UK-EU trade volumes and profitability
  • Non-tariff barriers (such as rules of origin and leaving EU VAT area) have much bigger impact than tariffs
  • New red tape means extra costs for UK government and business
    • One-off cost of installing UK border infrastructure: £4.7 billion (NAO) – operating costs will be extra
    • Annual cost of customs declarations: £7.5 billion (HMRC)
    • Annual cost to traders of border checks on food and animals: £0.5 billion (HMG)

• Economic costs of TCA far outweigh potential benefits of UK trade deals with non-EU countries 
  • Long-run annual cost of Brexit ~4.0% of GDP (OBR)
  • Rollovers of pre-existing EU trade agreements achieve no gains for UK
  • Long-run centra; estimates of annual benefits of new trade deals (Australia, NZ, CPTPP): ~0.18% of GDP (HMG)
  • Potential benefit of US and India deals estimated at 0.33% of GDP (HMG)
  • ‘Global Britain is a fantasy’

• From 2018 to 2023, compared to G7
  • UK goods exports performed 15% worse
  • Goods imports 8% worse (current prices)
  • UK services exports performed better at 17% growth, but behind EU (23%) and Germany (20%)
  • Services imports (12% growth) were middle of the G7 pack (above Italy, Japan and France)

• In real prices, from 2018 to 2023
  • Total exports increased by only £5 billion (1%) and imports were up by £30 billion (4%)
    • Increase of £49 billion (15%) in services exports exceeded fall in goods exports of £44 billion (-12%)
    • Total exports to EU fell by £12 billion (-8%) with goods down by £22 billion (-13%) and services up by £10 billion (8%)
    • Total non-EU exports grew by £17 billion (4%), with services up by £39 billion (35%) but goods down by £22 billion (-8%)
  • Total imports increased £30 billion (4%) where a £49 billion (22%) increase in services imports exceeded fall in goods imports of £19 billion (-4%)
    • Goods imports from EU hardly changed but non-EU goods imports fell by £18 billion (-12%)
    • Services imports from EU were up by £14 billion (13%), but non-EU imports up by £35 billion (32%)
  • For SMEs
    • Challenges include high shipping costs, transit delays, and lack of clear guidance
    • Supply chain disruption raises costs and reduces availability
    • 8,000 firms (mainly SMEs) stopped trading goods solely to the EU between 2021 and 2023
    • EU trade reduced due to 20-42% loss in the product varieties of goods being exported to EU
    • Reduced participation of UK in global supply chains

Click here for summary of Brexit FactBase.

UK trade

Overview

This is the second section on trade which digs into UK trade data. In this first part, we provide a detailed picture of recent trends and the UK’s trade profile:

• Trade balance
• Current or real prices?
• Goods and services balances
• UK trade trends
• Gravity
• Top 20 trading partners
• Top 10 goods categories
• Top 10 services categories

Trade balance

The UK’s trade surplus with non-EU countries has grown relative to UK GDP (see Figure 5.11). By contrast, the UK’s trade deficit with the EU has also grown, particularly since 2011, apart from recent reductions in 2020 and 2021 (largely as a result  of Covid effects on trade and the economy).

The non-EU trade balance was relatively small (less than 1% of GDP) from 2003 to 2010 and but then grew. The growth trend from 2000 in non-EU trade demonstrated that EU membership did not prevent the UK from growing its trade with non-EU countries.

Unsurprisingly, after the introduction of the post-Brexit Trade and Cooperation Agreement in early 2021, the trade deficit with the EU accelerated relative to GDP.

As the section on UK-EU trade below shows, the majority of UK trade was (and is) with the EU or non-EU countries that have free trade deals with the EU.

Figure 5.11: UK balance of trade (goods and services) with EU and non-EU countries

Sources:
House of Commons Library, May 2023
ONS, Gross Domestic Product: chained volume measures: Seasonally adjusted, 10 May 2024
ONS, Breakdown of trade data, 28 March 2024

Current or real prices?

When looking at trade figures, economists often use statistics in constant (or ‘real’) prices, with inflation removed. This is because the inflation included in Current Prices (‘CP’) does not create any value and distorts comparisons between different periods.  ONS refers to real prices as Chained Volume Measures  (‘CVM’) and defines the two as follows:

• Chained Volume Measures are a “real” measure in that they have had the effect of inflation removed to measure the change in volume between consecutive periods, fixing the prices of goods and services in one period (known as the base year, which is 2019 for trade).
• Current Price estimates measure the actual price paid for goods or services and are not adjusted for inflation. Unless otherwise stated, all current price data are provided in £ million and are seasonally adjusted.

Another distortion in UK goods trade figures is the export and import of precious metals (non-monetary gold and silver, platinum etc.). These transactions do not usually involve the physical movement of goods but a change of ownership. In addition, because of their treatment in the calculation of GDP, the transactions have no net impact on UK GDP. These precious-metal transactions can involve £ billions and their prices are volatile. As a result, it’s better to exclude precious metals from trade statistics to when assessing trends.

Please also note that ONS changed its methodology for collecting statistics on goods trade with the EU in 2021. The ONS estimates that this change increased reported exports to the EU by around 5% from 2021 onwards, and reported imports by around 6% from 2022 onwards. These material changes should be taken into account when comparing post-2021 UK trade with the EU with the pre-Brexit or pre-TCA trade.

Figure 5.12 shows how inflation and precious metals have boosted recent export figures. As you can see from the trend, inflation was not a major issue until 2021. In particular it will distort pre- and post-Brexit comparisons that use Current Prices.

• In 2023, current price exports of goods and services were £865 billion, including precious metals, but, in constant prices, exports were only £696 billion. Inflation added £153 billion and precious metals £16 billion over the equivalent CVM figure.
• In 2022, the inflation component was £122 billion, soaring up from £19 billion in 2021. It was zero in 2019, the ONS index year for real prices.
• Be warned that some politicians are happy to use current prices, including precious metals, because they make export statistics look stronger.

Trade statistics can generally be subject to revision. The ONS updates and refines its estimates for trade flows, so the latest ONS figures may differ from previous ones. The data on services trade, which can be difficult to measure, tends to be less certain than the data for goods trade. Alternative estimates for trade are available, such as those of Comtrade at the UN.

Always check the basis behind any trade statistics!

See Appendix B for supporting tables of ONS trade statistics.

Figure 5.12: Current prices, chained volume measures and precious metals

Sources:
ONS, Breakdown of Trade data, 28 March 2024
ONS, UK trade in goods, year in review: 2023, 1 March 2024
ONS, Impact of trade in goods data collection changes on UK trade statistics: summary of adjustments and the structural break from 2021, 22 January 2024

Goods and services balances

In 2023, the UK’s overall trade was £1,438 billion (CVM, excluding precious metals), split 55% goods and 45% services (see Table 5.4). The EU was, by far, the UK’s biggest single trading partner – 47.4% of UK total trade was with the EU and 52.6% with the rest of the world.

The UK’s manufacturing sector plays a critical role in overseas trade. The dominant role of goods in UK trade contrasts with manufacturing’s share of 10% of GDP where services account for 80%.

In 2023, the UK had a trade deficit of £47 billion derived from a deficit of £161 billion in goods which was partially offset by a surplus of £114 billion in services. In terms of the EU and non-EU components:

• UK had a trade deficit of £99 billion with the EU and a trade surplus of £52 billion with non-EU countries;
• With the EU, services produced a £15 billion surplus and goods a £114 billion deficit; and,
• With non-EU countries, services produced an £99 billion surplus and goods a £47 billion deficit.

Table 5.4: UK trade balance in 2023

Figure 5.13 shows the breakdown of UK’s total trade in 2023 (the £1,438 billion) into goods, services, imports and exports and EU/non-EU. Points to note:

• Trade with the EU was £681 billion, slightly less than half of the UK’s global trade at 47.4% (non-EU was 52.6% or £757 billion)
• Goods exports were roughly evenly split between EU (22.4% of EU trade) and non-EU markets (21.4% of non-EU trade)
• UK relies much more on imports of goods from the EU (39.2% of EU trade) than the non-EU (27.6% of non-EU trade)
• Services exports to non-EU markets (32.1% of EU trade) were significantly greater than to the EU (20.3% of non-EU trade)
• Services imports were roughly evenly split between EU (18.1% of EU trade) and non-EU markets (19.0% of non-EU trade)

Figure 5.13 Breakdown of 2023 trade

UK trade trends – EU/non-EU

Points to note on the trend in EU/non-EU share include (see Figure 5.14):

• Non-EU share of UK trade has been growing since 2006 and has been over 50% since 2008.
• Its previous lows were in 2002 (45.0%) and 2006 (45.9%).
• Before Brexit, in 2015, the non-EU share stood at 52.1%.
• In 2018, the last stable year of trade while the UK was in the EU, and before Brexit negotiations and then Covid disrupted trade patterns, it reached 51.5%.
• In 2023, the non-EU share was 52.6%, slightly down on 2021 and 2022.

Figure 5.14: EU and non-EU shares of trade

UK trade trends – goods and services

Some key observations on the trends in exports and imports of goods and services are (see Figure 5.15):

• Goods
  • Exports grew progressively from 2010 to hit a high in 2018 of £359 billion but have declined since then to £315 billion in 2023.
  • Imports have grown each year since 2010 (apart from 2020 and 2021) to £476 billion in 2023.
  • Goods trade deficit peaked in 2022 before reducing in 2023 to £161 billion, as overall goods trade volume reduced.
• Services
  • Exports have grown progressively since 2010, apart from 2020 and 2021, to reach a high point of £381 billion in 2023.
  • Imports followed a similar pattern and have recently been growing faster than exports to £267 billion in 2023, which has caused the services trade surplus to reduce.
  • Services trade surplus peaked at £148 billion in 2021, and has declined since then to £114 billion in 2023.
• Trade balance
  • Net trade balance had been in deficit since 2014, before achieving a small surplus in 2020 and 2021.
  • In 2022, the deficit returned but reduced slightly in 2023 to £47 billion, as both the goods deficit and the services surplus contracted.

Appendix B contains the data tables for this chart.

Figure 5.15: Trend in exports and imports of goods and services

Source: ONS, Breakdown of Trade data, 28 March 2024

Gravity

Countries trade the most with their nearest neighbours. As a rule of thumb, the data shows that trade between economies of equal size halves with a doubling of distance.

Trade economists have developed ‘gravity models’ based on the relationship between trade, size of economy and distance to model likely volumes of trade between countries.

There are trading opportunities for smaller economies with distant, larger economies that can mitigate the effect of distance (like the US and China). History, culture, legal systems and language can also facilitate trade with distant countries (such as between the UK and Australia or Canada).

Hover over the bubbles on the interactive chart at Figure 5.16, which maps UK exports and distance. You will find the UK’s exports are concentrated on nearest neighbours, with the notable exception of the US, because its economy is so much bigger than the UK’s. The ONS chart uses exports of goods and services for 2016.

Some Brexiters criticise gravity models, but trade specialists and academics assert that the predictive powers of gravity models show that they are robust. See, for example, ‘The gravity model’, PwC, 2017.

Figure 5.16: UK exports by distance

Top 20 trading partners

The UK’s top twenty trading partners accounted for 77% of total exports (goods and services) and 78% of total imports in 2023. The US (22.1% of exports and 13.3% of imports) and Germany (7.0% of exports and 9.9% of imports) were the UK’s largest individual trading partners in terms of total trade (see Figure 5.17 – based on ONS statistics in current prices and including precious metals.)

Some points to note:

• The top ten partners accounted for 62% of both exports and imports. The next ten partners had a much smaller average share of UK trade of around 3% each. The trade relationships with the top ten will be critical for future success.
• The UK’s top ten trading partners were all neighbours in Europe except for the US and China, which underlines the importance of gravity in trade. In Europe, the UK has several of the world’s most wealthy economies on its doorstep.
• Exports to the top ten were fairly evenly split between goods and services, being made up of 29% goods and 33% services. Imports from the top ten were weighted to goods of 43%, with services only contributing 19%.
  • For exports of goods, the US had the largest share, followed by Germany and several EU members.
  • For imports of goods, Germany was the UK’s leading partner followed by the US, Netherlands, France and China with similar shares.
  • For exports of services the US stands out as the UK’s top market by far, with Germany and Ireland next.
  • For imports of services, the US was the top source, followed by Spain and France (imports include expenditure by UK citizens on travel abroad).
• The Commonwealth trading partners in the top 20 were India, Canada, Singapore who together accounted for 5.5% of exports and 4.5% of imports (in aggregate, these Commonwealth partners would have ranked seventh in the league table). Australia was 21st with 1.7% of exports and 0.6% of imports.

Figure 5.17: Top 20 trading partners

Source: ONS, UK total trade: all countries, non-seasonally adjusted, 26 April 2024

Top 10 goods categories

In 2023, the UK had a trade deficit in goods of £186 billion from exports of £395 billion and imports of £581 billion (current prices, including precious metals). The UK’s top ten goods categories in 2023 accounted for 49% of exports and 52% of imports. Figure 5.17 is arranged in the order of each category’s contribution to trade (the sum of exports and imports). There are 16 listed because there are some differences between the top categories for exports and imports. Unspecified goods (item 16) includes the precious metals figures.

The UK’s top export in 2023 was cars (9.2% of £395 billion) and the top import, food and live animals (9.0% of £581 billion). Grouping the other categories together, there are important groups in mechanical power generators (3), electrical machinery (4,8), oil and gas (6,7,10), and electrical goods (9). Note that most of the top ten categories are the same for both imports and exports.

Imports and exports are often interlinked. Over two-thirds of UK goods and services exports are of intermediate components for overseas producers. As the Institute for Fiscal Studies observed, the interconnected nature of global trade means that a country’s imports and exports cannot be treated as independent quantities. The IFS estimated that over half of goods and services imports from the EU were inputs to the production of goods and services in the UK.

Scroll down to ‘Interactive tools’ to interrogate UK trade data by trade partner and by sector. The tools allow you to drill down into the categories.

For a ready reckoner for Figure 5.18, 1% of goods imports is £6 billion and 1% of goods exports is £4 billion in current prices.

Figure 5.18: Top goods categories

Sources:
Institute of Fiscal Studies, Firms’ supply chains form an important part of UK-EU trade: what does this mean for future trade policy? 8 January 2018
ONS, Trade in goods, country-by-commodity exports, 12 June 2024
ONS, Trade in goods, country-by-commodity imports, 12 June 2024

Top 10 services categories

In 2023, the UK had a trade surplus in services of £153 billion from exports of £469 billion and imports of £316 billion (in current prices). The top 10 accounted for 88% of exports and 84% of imports.

Four sectors stood out (see Figure 5.19) as the most important contributors to the UK’s services trade surplus in services: financial services (2); legal, accounting, management consultancy and public relations (3); telecoms, computer and information services (6); and, insurance and pension services (8). Going in the other direction, two categories had trade deficits: travel (1) and transportation (5).

As a ready reckoner, 1% of exports was worth £5 billion and 1% of imports £3 billion.

Our analysis splits the large category ‘other business services’ into its main components which are items 4, 5, 7, 9 and 12.

Figure 5.19: Top services categories

Source:
ONS, UK trade in services: service type by partner country, non-seasonally adjusted, 26 April 2024

Interactive tools

Use these ONS interactive tools to interrogate UK trade in goods for 2023:

UK-EU trade

This section assesses UK-EU trade in depth – the UK’s most valuable trade relationship:

• Importance to EU of UK trade
• UK-EU trade trends
• Import and export linkages
• Trade with EU by commodity
• Trade with EU by country
• EU deals with non-EU countries
• UK trade under EU trade deals

Importance to EU of UK trade

The EU is the UK’s largest trade partner. By contrast, EU27 trade with the UK is much less important to the EU than intra-EU trade (see Figure 5.20). However, the UK was still an important extra-EU trading partner.

For the EU, the breakdown of total trade in 2022 was:

• UK – 4.9% or EUR 925 billion (EUR 545 billion in goods and EUR 380 billion in services).
• Other EU countries – 57.2% or EUR 10,690 billion (EUR 8,330 billion in goods and EUR 2,360 billion in services)
• Non-EU countries (excluding UK) – 37.9% or EUR 7,076 billion

The UK is an important trading partner for the EU. It ranked third for goods trade (accounting for 9.8% of extra-EU trade in 2022) and second for goods exports (after the US). The UK was also the EU’s second trading partner for services trade (accounting for 19% of total extra-EU services trade) in 2021.

Figure 5.20: EU trade with UK (€ billion – 2022)

Source: DG Trade Statistical Guide, August 2023

UK-EU trade trends

UK exports to the EU are roughly two-thirds goods and one-third services. The ratio of imports is more even: 54% goods and 46% services. The three charts below (Figures 5.21, 5.22 and 5.23) show the overall trends.

• Exports of services to the EU have been increasing while exports of goods have been flatlining.
• Imports of both goods and services from the EU have been increasing, but in 2023 services began to increase faster.
• For the UK-EU trade balance, services have generated a trade surplus since 2004, but started to decline in 2022. The surplus in services peaked in 2021 at £38 billion, flattered by a decline in travel imports due to the pandemic.
• Goods trade has generated a deficit since 2002. It then accelerated before remaining fairly stable 2016 – 2019, before resuming its downward trend.

Figure 5.21: Exports to EU

Figure 5.22: Imports from EU

Figure 5.23: Trade balance with EU

Source: ONS, Breakdown of trade data, 28 March 2024

Import and export linkages

Imports and exports are linked through intermediate products (components, assemblies etc.) in global value chains, which account for a large proportion of international trade. The majority of UK exports and imports are now made up of goods or services that are themselves inputs into production.

This sort of trade is particularly important for understanding the UK’s trade with the EU. Over half of the UK’s imports from the EU are of such intermediate goods and services, as are nearly 70% of our exports to the EU (see Figure 5.24 from the IFS using 2014 data). These shares have also been growing over time. Intermediate goods and services tend to be more important in the UK’s exports to the EU than in its exports to other destinations.

Brexit puts the UK’s role in integrated supply chains at risk through additional costs and delays caused by new non-tariff barriers on UK-EU trade. This risk is not limited to EU trade in integrated supply chains. For example, many exports of UK goods to the US depend on UK imports of intermediate goods from the EU.

Figure 5.24: Share of intermediate goods and services in the UK’s imports and exports, 2000–14

Source: IFS, Firms’ supply chains form an important part of UK-EU trade: what does this mean for future trade policy?, January 2020

Trade with EU by commodity

For the top 10 goods commodities and services types that the UK traded with the EU, see Figures 5.25 and 5.26. For more in-depth analysis of UK trade with the EU, please see the House of Commons Briefing on Statistics on UK-EU Trade – CBP 7851. However the latest available at the time of writing (June 2024) relates to 2022.

Goods trade with the EU totalled £186 billion exports and £319 billion of imports (in current prices) in 2023. The largest import category was £37 billion of food and live animals (11.8% of imports from the EU), followed by £34 billion of material manufactures (10.7%) and £31 billion of cars (8.8%).

In food and live animals imports, the top items were vegetables and fruit (£9 billion), meat (£7 billion), cereals (£5 billion) and dairy (£4 billion). In material manufactures imports, the top items were paper and packaging (£7 billion), iron and steel (£6 billion) and non-ferrous metals (£5 billion).

The UK’s top export categories were material manufactures (£!9 billion, mainly in iron and steel, non-ferrous metals and miscellaneous metal manufactures) and cars (£13 billion).

All of the top ten commodities had a trade deficit – we imported more than we exported to the EU. Although it’s not on the chart, the UK had a trade surplus on crude oil of £15 billion in 2023 which was the biggest individual surplus. The biggest trade deficit was £26 billion for food and live animals.

Figure 5.25: UK goods trade with EU by commodity

Trade with EU by service type

Services trade with the EU totalled £171 billion exports and £147 billion of imports (in current prices) in 2023. All the main service types, apart from travel and transportation, generated a trade surplus in 2023.

The top import category was travel, accounting for £52 billion (35.7%) of imports. This represents business and personal travel of UK citizens to the EU. 2023 probably saw a bounce-back from the pandemic. The trade deficit with the EU on travel was £35 billion (there’s a rounding difference).

Transportation services also had significant imports of £22 billion (14.8% of services imports with the EU) and a trade deficit of £7 billion.

On exports, the top export item was financial services with £28 billion (16.3% of services exports to the EU) and a trade surplus of £24 billion. Services between affiliated enterprises came next with  £22 billion (12.9%) with a surplus of £15 billion.

Note that item numbers 4, 5, 7, 9 and 10 on the chart are all components of the ONS category, “Other Business Services”.

Figure 5.26: UK services trade with EU by service type

Trade with EU by country

Trade with the UK was particularly important for certain EU countries and industries relative to the size of their economies, which could be seen by measuring UK trade as a percentage of GDP (Figure 5.27).

• Ireland because of its geographical proximity and close ties
• Smaller economies with historic UK ties like Cyprus and Malta.
• In larger countries, UK trade is often important for certain sectors and regions. For example, in Germany, UK trade is important for manufacturing in the south west.
• UK trade with Netherlands and Belgium may be inflated by goods in transit to other EU destinations (the ‘Rotterdam effect’).

Sector concentrations in goods varied by country, for example:

• German goods exports to the UK are concentrated in road vehicles, other manufactures and chemicals.
• Belgian and Dutch exports to the UK are concentrated in machinery and transport equipment, and chemicals.
• Ireland is a notable exporter of food products to the UK, whereas its imports are highly diversified.
• Malta also has diversified imports from the UK, whereas its exports of goods to the UK are relatively small.

Scroll up to Interactive tools to explore the mix of trade with the UK for individual EU countries.

Figure 5.27: UK trade with the EU by country (as % of GDP – 2015)

Source:
ONS, UK total trade: all countries, non-seasonally adjusted, 28 April 2022
European Commission, An assessment of the economic impact of Brexit in the EU27, March 2017

EU deals with non-EU countries

Overview

The EU has multiple trade agreements with non-EU countries.

As an EU member, the UK benefited from EU preferential trade agreements with 102 non-EU countries (in November 2020, just before the UK signed its Brexit trade agreement with the EU):

• 74 countries with trade agreements in force made up of:
  • 21 with Free Trade Agreements (including Canada, Chile, Colombia, Ecuador, Japan, Mexico, Norway, Peru, Singapore, South Korea, Switzerland)
  • 3 with Customs Unions (Turkey, Andorra and San Marino)
  • 14 with Association Agreements
  • 3 in a Deep and Comprehensive Free Trade Area (Georgia, Moldova and Ukraine, which also has an Association Agreement)
  • 33 with Economic Partnership Agreements
• 25 countries with concluded agreements pending:
  • 5 with FTAs pending (Vietnam and Mercosur – Argentina, Brazil, Paraguay and Uruguay)
  • 20 with EPAs pending
• 3 with Partnership and Cooperation Agreements (which do not affect tariffs) (Azerbaijan, Kazakhstan, Iraq)

At the time of Brexit, these agreements resulted in about 87% of UK goods imports (by value, from all countries) being tariff-free or zero-rated (see Figure 5.27).

In addition, there were 5 countries in live negotiations with the EU: 4 for FTAs – Australia, Indonesia, New Zealand, Philippines – and China for an investment partnership. There were a further 24 countries with suspended or paused negotiations including the TTIP with the US and FTAs with India, Malaysia, Thailand and the Gulf Cooperation Council states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates).

The EU had been negotiating Trade in Services agreements (TISAs) with 23 WTO members, but the negotiations were currently suspended. The participating countries accounted for about 70% of world trade in services. Twenty-one negotiating rounds have taken place, but there was no agreed deadline for finishing the negotiations.

UK trade with non-EU Europe

UK trade with non-EU European countries also benefited from EU agreements. These included Norway, Iceland and Liechtenstein which are in EFTA and the EEA, and Switzerland in EFTA. Turkey is another important UK trading partner with an EU agreement based on a Customs Union.

The UK also traded under EU agreements with: Albania, Andorra, Bosnia & Herzegovina, Faroe Islands, Georgia, Kosovo, Moldova, Monaco, Montenegro, San Marino, Serbia and Ukraine.

The Crown Dependencies (Jersey, Guernsey, Isle of Man) and Gibraltar are not part of the United Kingdom nor member states of the EU, but, before Brexit, their trade was strongly influenced by agreements with the EU.

• Crown Dependencies were part of the EU Customs Union and were in the Single Market for trade in goods and agricultural products (including fish), but were third countries in all other respects.
• Gibraltar was a member of the Single Market.

Generalised Scheme of Preferences

In addition, the EU’s Generalised Scheme of Preferences  removed import duties from products from 70 vulnerable, developing countries. The aim of GSP is to help developing countries alleviate poverty and create jobs respecting labour and human rights. About a dozen other countries have GSP mechanisms in place. The UK has created its own GSP framework to replicate the EU framework.

The EU’s GSP regime offers:

• Standard GSP for low and lower-middle income countries. This means a partial or full removal of customs duties on about two-thirds of tariff lines – (14 countries, excluding Vietnam).
• GSP+: the special incentive arrangement for sustainable development and good governance. It reduces the tariffs on these tariff lines to 0% for vulnerable low and lower-middle income countries that implement 27 international conventions related to human rights, labour rights, protection of the environment and good governance – (8 countries).
• EBA (Everything but Arms): the special arrangement for least-developed countries, providing them with duty-free, quota-free access for all products except arms and ammunition – (48 countries).

UK trade under EU deals

The majority of UK trade benefited from EU trade deals before Brexit. In 2019, 65.5% of UK trade in goods and services benefited from EU trade agreements, 62% of UK exports and 69% of UK imports (see Table 5.5). In addition:

• 1.9% was with countries that were in live negotiations with the EU for agreements for trade (1.9%)
• 5.6% was with China, in negotiation for an investment agreement
• 16.3% was with the US, the UK”s top individual trade partner, trading on WTO terms plus various EU bilateral agreements. Hong Kong traded on a similar basis and accounted for 1.7% of UK trade.
• 9.0% of UK trade was with 98 other partners, including 70 which benefited from the EU’s Generalised System of Preferences. A further 24 countries had suspended or paused negotiations with the EU (notably the India, Gulf Cooperation Council states, Malaysia and Thailand).

Note that you can scroll right in the table to see the breakdown by imports, exports and trade balance.

Table 5.5: UK trade partners and EU agreements – 2019

See Appendix C for a list of EU trade agreements.

Sources:
ONS, UK total trade: all countries, non-seasonally adjusted, 23 July 2020 (current prices, including precious metals)
European Commission, 2019 Report on Implementation of EU Free Trade Agreements 1 January 2018 – 31 December 2018
EU trade agreements database (accessed November 2020)

Effective tariff rate on UK imports

As a result of EU trade deals and GSP, 87% of UK goods imports by value were tariff-free (see Figure 5.28, based on detailed statistics from Eurostat). The UK Trade Policy Observatory separately provided a top-down estimate of 82%.

Figure 5.28: Effective tariff rates on UK goods imports (2017, by value)

Sources:
UK Trade Policy Observatory, What should we make of the UK’s ‘No Deal’ tariffs?, March 2019
Tariff rate analysis is based on Eurostat data for 2017, chart from Eugene Lynch.

Brexit impact

This section describes the Brexit impact on trade. We cover the new trade arrangements:

• UK-EU trade deal
  • Replacing EU trade deals
  • Leaving EU VAT area
• UK Global Tariff
• UK’s non-EU trade deals
• Trade infrastructure

and quantify the effect on trade:

• Real vs current prices
• Comparison with the G7
• UK comparison 2023 vs 2018
• Impact on SMEs

UK-EU trade deal

The principal impact of the Trade and Cooperation Agreement (TCA) compared to EU membership is to raise trade barriers between the UK and the EU. In addition, the TCA:

• Eliminates tariffs for qualifying goods (including agriculture and fisheries).
• Eliminates quotas for qualifying goods (not fisheries).
• Restricts the movement of people between the UK and the EU.
• Permits UK to negotiate trade deals with non-EU countries.
• Creates a special customs arrangement for Northern Ireland (and compliance with EU regulations on agri-food).
• Allows UK to negotiate to participate in EU programmes, such as Erasmus and Horizon.

The TCA creates barriers for imports from the EU to the UK but these are not yet fully in force. Not all barriers apply to trade between Northern Ireland and the EU.

For GB exports to the EU, the TCA erects non-tariff barriers (NTBs):

• for goods, including:
  • customs declarations;
  • safety and security certificates;
  • evidence of origin of goods, or inputs into the manufacture of goods;
  • import VAT requirements;
  • export health certificates for certain food and plant origin products; and
  • requirements under the EU’s REACH system (the Registration, Evaluation, Authorisation and Restriction of Chemicals).
• for services, including:
  • restricted mobility of people (through limited duration of visits, work permits and visas etc.);
  • lack of mutual recognition of professional qualifications;
  • loss of passporting rights (notably for financial services firms); and
  • loss of road and air transportation rights.

Rules on the origin of goods determine what inputs qualify for zero-tariff treatment. Usually, goods must contain a specific percentage of originating material from either the UK and/or the EU. These product-specific ‘rules of origin’ mean that goods which do not contain enough ‘local’ content do not qualify for zero-tariff treatment, neither do goods which have not been sufficiently processed or made in the UK. This means, for example, that :

• Goods imports from the rest of the world cannot be re-exported tariff-free to the EU, without sufficient processing. So, movements of non-originating goods have to be carefully managed to avoid tariffs on re-export to the EU.
• Goods imports from the EU, cannot then distributed tariff-free from GB back into the EU, without sufficient processing.
• Some larger firms have had no choice but to set up distribution networks in the EU, for EU-originating goods. For example, UK companies have formed commercial entities and registered for VAT in both the Netherlands and Germany, to comply fully with relevant commercial and VAT rules.

For an in-depth description of trade barriers created by the TCA and their implications for specific sectors, please go to the section on the TCA. As the UK continues to deviate from EU policy due to active and passive regulatory divergence, the complexities for UK businesses of trading with the EU increase and Brexit trade costs continue to rise.

The new trading relationship between the UK and EU causes a permanent drag on trade, productivity and economic growth. The Office for Budget Responsibility (OBR) has estimated for some time that the long-run impacts will be to:

• reduce long-run (by 2031) productivity by 4% relative to remaining in the EU (and reduce GDP by 4%);
• lower exports and imports by around 15% compared to whether the UK had remained in the EU; and,
• allow new trade deals with non-EU countries that will have an immaterial and gradual impact.

See Economic Context for other views on the impact of Brexit on GDP.

Sources:
British Chambers of Commerce, The Trade and Cooperation Agreement Three Years on Proposals for Reform by UK Business, December 2023
OBR, Brexit analysis, 1 May 2024

Replacing EU trade deals

EU trade agreements with 74 other countries accounted for over 18% of UK trade in 2019 (see Table 5.5). The government has rolled over 69 EU agreements by April 2024. The new agreements were essentially ‘cut and paste’ versions of existing EU agreements with relatively minor changes. This includes the Comprehensive Economic Partnership Agreement with Japan, which contains some useful improvements, but a small additional economic benefit compared to the EU deal it replaced.

The UK had also signed MRAs that replicate some EU bilateral arrangements with the US and Australia (and New Zealand). Note that the UK’s agreement with Turkey is now an FTA rather than a customs union.

For the UK’s other larger partners, the new agreements are not as straightforward as the old ones, for example:

• The new agreements can still complicate trade, particularly for goods imported into the UK from a non-EU country and then exported to the EU (due to the effect of rules of origin). Please see an excellent short explanatory video  from the UK Trade Policy Observatory at Sussex University.
• The Swiss rollover is partial for goods trade because of complications over Rules of Origin and Mutual Recognition Agreements (MRAs).
• The Norway rollover relates only to goods, but excludes services, which were covered in the pre-Brexit EEA agreement.

Leaving EU VAT area

VAT accounts for 18% of UK tax receipts – the third largest source of tax revenue after income tax (25%) and national insurance (19%). So, any press reports that VAT could be abolished with Brexit were fanciful. The government said that it aimed to minimise changes to VAT processes after Brexit.

A big change after Brexit is how VAT is charged on trade with EU member states. A UK importer has to pay import VAT at the border. This means:

• Payments occur earlier leading to potential cash flow consequences (which is particularly harmful for small businesses).
• British companies trading across the EU in services need to become VAT-registered in each member state where they operate.
• British importers have to make import declarations for the first time – a change that affects around 130,000 businesses. The European Commission warned of other potential complications for those engaging in cross-border trade. For example, the need to employ a VAT representative in the country to which exporters are sending goods.
• HMRC needs increased staff and resources.
• Goods need to be held at the border until VAT is paid. This is also inconveniences consumers buying products from the EU over internet marketplaces.
• Brexit  has required new infrastructure to impose VAT at the UK border, including with Ireland.
  • New controls check packages coming into the UK from the EU (in the same way that packages from non-EU countries are inspected).
  • The alternative would be to accept a loss of control of VAT revenue and an increase in fraud.

Some UK officials said that infrastructure can be avoided if the EU lets the UK remain in the current information exchange system. The system ensures governments know which goods have crossed EU frontiers. UK officials are seeking this access without being subject to European courts or common VAT rules. They argue that if the UK aligns its product standards with the EU, information sharing is only a small extra step to keep the cross-border trade flowing freely.

Sources:
What Brexit means for VAT, Prospect Magazine, April 2018
VAT: Brexit’s hidden border dilemma, Chris Giles, Financial Times, 30 May 2018

UK Global Tariff

The UK’s new tariff regime, UK Global Tariff’ (UKGT), applied from 1 January 2021 to imports from countries that have no trade deal with the UK.  The US, China and India are in this category. It provides a baseline for any UK negotiations for FTAs with the US and other countries. Goods imported from developing countries continue to attract no tariffs, because the UK has replicated the EU’s Generalised Scheme of Preferences – a blanket agreement which means most imports into the UK from developing countries are not subject to tariffs.

Applied tariffs vary by commodity and are generally lower than the bound tariffs but cannot exceed them. The applied tariff is also called the ‘Most Favoured Nation’ or MFN tariff. In practice the MFN tariff is the highest tariff that the UK would apply to another WTO member. However, the UK may raise its applied tariffs at short notice up to the bound level.

The UKGT is broadly similar to the EU’s Common External Tariff (CET) but with some differences:

• UKGT is simpler than the CET
• UKGT tariffs are slightly lower than CET, which creates complications:
  • For Rules of Origin (RoO) monitoring and reporting;
  • For Northern Ireland into the Republic, it is more likely that more goods will be deemed ‘at risk’;
  • Increases the need for border / customs controls, and will have an impact on Northern Ireland.

• Average UKGT MFN tariff is slightly lower than the CET average (5.7% vs 7.2% per tariff line or 1.5% vs 2.1% by weighted value)
• UK bound tariff is more liberal than the CET (60% by value are tariff free, compared to 50%).

Sources:
UK Trade Policy Observatory, Recommendations on the UK Government’s Global Tariff proposals, Briefing Paper 39, March 2020
UK Trade Policy Observatory, New tariff on the block: What is in the UK’s Global Tariff?, May 2020
UK Trade Policy Observatory, The UK’s ‘No Deal’ Tariffs: An Update, October 2019

UK’s non-EU trade deals

As of June 2024, the UK had only signed two agreements which were not rollovers of EU trade agreements: with Australia on 16 December 2021 and New Zealand on 28 February 2022.

The UK is in the process of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – an FTA  between 11 high-growth countries concentrated in the Asia Pacific. However, the UK already has trade agreements with 9 of the 11: Australia, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam. The two exceptions are Brunei and Malaysia.

Elsewhere, negotiations for a trade deal continue with India, but they have stalled with the US. The UK is also in discussions to improve existing agreements such as with Mexico and Canada.

‘Global Britain as a strategy for international trade is a fantasy’ according to the Centre for Economic Performance at LSE. Figure 5.29 shows why. The economic benefits of UK trade deals with non-EU countries are tiny compared to the huge costs of the TCA.

The negligible benefits (based on HMG’s own impact assessments for 2035) are a long way off in the future, but the costs of the TCA that have already happened dwarf them, with further costs to come. Even with the uncertainties inherent in estimating long-term economic impacts, the cost-benefit analysis is crystal clear.

The OBR has consistently estimated that Brexit will cause a long-run 4% reduction in GDP by 15 years from 2016, but also that about 40% of this (i.e. a hit of 1.6%) had already happened when the TCA started in 2021. Professor Jonathan Portes of the Centre for Economic Policy Research (CEPR) reviewed the evidence on current Brexit effects in July 2023 and estimated that the harm at that point was already at 2 to 3% of GDP (independent of the effects from Covid or the war in Ukraine).

Figure 5.29 summarises the estimated long-term, potential economic benefits of trade deals at 0.51%. It uses central estimates from HMG’s assessments (the benefits estimate includes UK FTAs with India and the US are still to be negotiated and estimated to be worth 0.33% of GDP).

Figure 5.29: Benefit of trade deals relative to cost of Brexit

In an important development for services trade, UK and Swiss authorities signed the “Berne Financial Services Agreement” on 21 December 2023, which is a mutual recognition agreement (MRA) providing enhanced market access for UK and Swiss firms to each other’s markets in specific financial services sectors. The MRA also commits the parties to ongoing regulatory and supervisory cooperation. HMG has not published an economic impact assessment.

In another services development, the UK and Singapore have signed a Digital Economy Agreement (DEA). As a result of the agreement, businesses and consumers can now benefit from: open digital markets, including guaranteed tariff-free flow of digital content, free flow of trusted data, guaranteed protections for personal data and intellectual property and cheaper trade through the adoption of digital trading systems. HMG has not published an impact assessment.

The Swiss and Singaporean agreements could form the basis of similar deals with other countries.

The US is the UK’s main trading partner outside the EU, and other than India is the only major partner without a trade deal. However a trade deal with the US would have small economic benefits for the UK. The US economy is much less dependent on trade than the UK’s, and its negotiating position is strong because its economy is seven times the size of the UK’s.  In May 2018, an authoritative study published in association with Harvard Business School concluded:

“it is highly unlikely that a free trade deal between the US and the UK will be secured in the near term and that the likely potential benefits for British businesses are less than often suggested.”

In 2020, the Johnson government estimated the long-term economic benefits of a UK-US FTA at up to 0.16% of UK GDP.

It’s important to remember that, even with trade deals, the UK can only succeed in international trade where it is competitive and can overcome any remaining trade barriers (such as distance). The attractiveness of an overseas market depends on many other factors such as size of economy, comparability of legal system, language, culture and, of course, historic ties and established relationships. Irrespective of trade agreements, even as an EU member, the UK was losing market share in India to Germany and France. For example, before Brexit, Germany did 4-5 times the UK’s trade with China.

Sources:
Centre for Economic Performance, Brexit and UK Trade, June 2024
HMG impact assessments of UK trade deals with:
   Australia
   CPTPP
   India
   New Zealand
   US
Centre for Economic Policy Research (CEPR), The impact of Brexit on the UK economy: Reviewing the evidence, Jonathan Portes, 7 Jul 2023
On the Rebound: Prospects for a US-UK Free Trade Agreement, Peter Sands, Ed Balls, Mehek Sethi, Eleanor Hallam, Sebastian Leape, Nyasha Weinberg, May 2018

Trade infrastructure

The UK’s Department of International Trade (DIT) has built a team with specialist skills to negotiate trade agreements, and has logged some successes. However, it has focused mainly on replacing EU agreements rather than negotiating new ones. Following a government reshuffle, the DIT became part of the Department of Business and Trade (DBT) in February 2023.

The DIT employs 3,300 staff in the UK to negotiate trade agreements, resolve disputes, help remove trade barriers and promote exports. There are also 1,400 overseas staff to support exports and the implementation of trade agreements. By contrast, the European Commission had 717 staff members in DG Trade to support 27 member states (as of 1 January 2024). DG Trade not only negotiates but also maintains and monitors trade deals for the EU.

To be effective, trade agreements require border controls, collection of tariffs, duties and VAT, plus ongoing monitoring and maintenance. To do this, the UK has had to design and implement new public and private sector infrastructure which has been a significant undertaking. The government has not helped by being slow to reach an agreement with the EU, poor planning, repeated delays in implementing its own system changes, and failing to provide timely details of final new rules to the private sector.

• The National Audit Office has estimated that the cost of implementing new post-Brexit border controls for goods trade is £4.7 billion (£2.6 billion of which had been spent by March 2023).
  • This cost primarily relates to putting in place the infrastructure and systems required to manage the border in the context of EU exit, and wider programmes to improve the performance of the border, for example, through making better use of data to reduce costs for traders and government.
  • It does not include the additional enduring operational cost of managing the border, such as additional staff.
• HMRC is responsible for collecting tariffs, duties and VAT.
• Traders have faced additional administrative burdens and costs moving goods across the EU–GB border since the UK left the EU;
  • £7.5 billion HM Revenue & Customs’ 2019 estimate of the total annual cost to UK businesses of completing customs declarations on trade between the UK and the EU, which it is yet to update;
  • 316,000 Export Health Certificates issued by the Animal and Plant Health Agency on goods exported from GB to the EU during 2023 (not including goods moved from GB to Northern Ireland);
  • £54 million the Department for Environment, Food & Rural Affairs’ estimate of the annual cost to traders of the sanitary and phytosanitary (SPS) controls it introduced for EU imports between January 2021 and December 2023;
  • additional costs following the introduction of the remaining import controls: £469 million the government’s estimate of the annual cost to traders of the SPS controls and safety and security declaration (SSD) requirements it is putting in place under its new Border Target Operating Model (some of which existed before the UK left the EU because of long-standing controls applied to imports from countries in the rest of the world).

The complexities of trade outside the EU have been a major challenge for small and medium-sized businesses (SMEs). Before the TCA came into force at the start of 2021, over 200,000 UK companies (the majority being SME exporters) had only ever traded with the EU on a tariff-free, but also near frictionless, basis within a common VAT area. Now, UK-based exporters who wish to export to the EU require their own trade infrastructure and new capabilities to deal with customs checks and to certify the origin of goods.

• Pre-Brexit UK exporters (for goods or services) needed very little documentation to export to any country in the EU.
• Many SME exporters do not have, or cannot afford, the expertise to deal with the complexities of import duties, transit documentation, additional VAT considerations etc.
• The British Chambers of Commerce noted that the complexity has led some firms to establish commercial entities within the EU (and register there for VAT purposes) to service EU customers.
• As a result of the administrative burden, some SMEs have stopped exporting to the EU.
• Similarly, EU-based business customers and suppliers now find UK SMEs less attractive to deal with than before the TCA.

Sources:
Department of International Trade, Annual Report and Accounts 2022-2023, published July 2023
National Audit Office, The UK border, Implementing an effective trade border, May 2024
European Commission, Key figures on European staff on 1 January 2024

Quantifying the effect on trade

Summary

This section covers:

• Real vs current prices
• Comparison with the G7
• UK comparison 2023 vs 2018
• Impact on SMEs

To assess the impact of the TCA on UK trade, we compare 2023 trade with a 2018 baseline. ONS notes that 2018 was the last stable year of trade while the UK was still in the EU, before Brexit negotiations and Covid disrupted trade patterns. Where possible, we use real prices, but these are not always easily available for international comparisons.

• Compared to the G7, from 2018 to 2023, in current prices:
  • UK goods exports grew by 15% less than the G7 average, and UK goods imports grew by 8% less than the G7 average (but in both cases by more than Japan).
  • UK services exports performed well, growing by 16.7% just behind Germany (20.1%) and the EU (23.2%), UK growth in services imports was middle of the pack (12.1% growth), above Italy (10.7%), Japan (5.6%) and France (4.5%).
• In real prices, from 2018 to 2023, UK total exports increased by only £5 billion (1%) and imports were up by £30 billion (4%).
  • A marked increase of £49 billion (15%) in services exports exceeded a marked fall in goods exports of £44 billion (-12%).
    • Total exports to the EU fell by £12 billion (-8%) with goods down by £22 billion (-13%) and services up by £10 billion (8%).
    • By contrast, total non-EU exports grew by £17 billion (4%), with services up by £39 billion (35%) but goods down by £22 billion (-8%).
  • Total imports increased £30 billion (4%) where a £49 billion (22%) increase in services imports offset and exceeded a fall in goods imports of £19 billion (-4%).
    • Goods imports from the EU hardly changed but non-EU goods imports fell by £18 billion (-12%).
    • Services imports from the EU were up by £14 billion (13%), but non-EU imports increased by much more: £35 billion (32%)
• For SMEs:
  • Challenges include high shipping costs, transit delays, and lack of clear guidance.
  • Supply chain disruption raises costs and reduces availability.
  • 8,000 firms (mainly SMEs) stopped trading goods solely to the EU between 2021 and 2023, citing red tape, overall costs and supply chain or logistical issues.
  • EU trade has also reduced as a result of a 20-42% loss in the product varieties of goods being exported to the EU.
•  

Real prices vs current prices

In real prices, UK exports of goods and services for 2023 (£696 billion) were only slightly above their pre-pandemic, pre-Brexit level of £691billion (see Figure 5.30).

When certain politicians and commentators talk about record UK exports in 2023, they are usually referring to export figures in current prices (and sometimes include precious metals) – £865 billion. However, when inflation and precious metals are excluded, the figure is substantially lower at £696 billion.

Also, following the ONS methodology change from 2021 (discussed above), the 2018 figure for UK exports to the EU (£153 billion – see Table 5.4) should be uplifted by around 5%. Comparing apples with apples would wipe out the small increase in exports of £5 billion.

For UK imports of goods and services, there is also a big difference in 2023 between current prices (£922 billion) and real prices (£743 billion)  (see Figure 5.31). In real terms, 2023 imports were £30 billion above 2018, but that is before making a 6% methodology uplift to 2018 imports from the EU (£267 billion), which would reduce the increase to about £14 billion (an increase of 2%).

See Appendix B for supporting tables of ONS trade statistics.

Figure 5.30: Trend in UK exports

Figure 5.31: Trend in UK imports

Comparisons with G7 countries

To understand how UK trade is performing, we need to split out goods and services and compare the UK with other countries, such as its fellow members of the G7 (Canada, Germany, France, Italy, Japan, and the US). The OECD provides these trade statistics in US dollars and current prices and they are seasonally adjusted.

Goods trade

As many goods exports and imports are interlinked often through trade in intermediate components, we would expect the trends in exports and imports for a given country relative to the G7 to follow broadly similar patterns. In the UK’s case, the six other G7 countries are also important trading partners, accounting for 40% of exports and 36% of imports in 2023 (see Figure 5.17).

However, for UK goods trade, comparing Q4 2023 with Q1 2018:

• Exports grew by 15.3% less than the G7 average, exceeding only Japan (see Figure 5.32).
  • Q4 2023 goods exports of the UK had contracted by 3.7% since Q1 2018
  • G7 exports (including the UK) had grown by 11.6%.
  • Euro area exports had grown by 11%.
• Imports grew by 7.7% less than the G7 average but by more than Japan (see Figure 5.33).
  • G7 goods imports (including UK) had grown by 14.8%.
  • UK import growth of 7.1% was close to that of Germany (8.6%) and France (8.8%).

In the period 2020 to 2023, intra-EU goods exports had grown at 45% as the EU recovered from the Covid shutdowns, faster than extra-EU exports which grew at 32% (measured in current prices in Euros) – see Figure 5.34. If the UK had still been an EU member with friction-free access to the EU market, it seems clear that its overall goods exports would have grown, not contracted.

Figure 5.32: UK goods exports vs G7

Figure 5.33: UK goods imports vs G7

Figure 34: EU goods exports

Source:
OECD, International merchandise statistics, accessed 11 July 2024
Eurostat, EU trade statistics for goods, accessed 20 July 2024
John Springford, Brexit four years on: answers to two paradoxes, 25 January 2024

Services trade

For services trade, comparing trade of the UK with other countries of the G7 from Q1 2018 to Q4 2023:

• UK services exports performed well, growing by 16.7% but less well than the EU (23.2%)  and Germany (20.1%)- see Figure 5.35.
• On services imports the UK was middle of the pack (12.1% growth), above Italy (10.7%), Japan (5.6%) and France (4.5%)  – see Figure 5.36.

For some reason, Canada’s 2023 figures are not yet available in the OECD database, so G7 comparisons are not available for 2023. Note also that OECD provides statistics for services trade in annual rather than quarterly figures.

As with goods exports, if the UK had not had to contend with Brexit trade barriers, but had remained an EU member, its services exports would have grown more strongly than they did.

Figure 5.35: UK services exports vs G7

Figure 5.36: UK services imports vs G7

Sources:
OECD, International trade in services, accessed 11 July 2024
Statista, Annual intra- and extra-EU exports of services from 2020 to 2022, 4 July 2024
Eurostat, International trade in services, accessed 26 July 2024

UK comparisons – 2023 vs 2018

From 2018 to 2023, total exports increased by only £5 billion (1%) and imports were up by £30 billion (4%). However, there were marked differences between the changes in UK goods and services trade, and between EU and non-EU trade. See Figures 5.37 and 5.38.

• A marked increase of £49 billion (15%) in services exports exceeded a marked fall in goods exports of £44 billion (12%).
  • Total exports to the EU fell by £12 billion (8%) with goods down by £22 billion (13%) and services up by £10 billion (8%).
  • By contrast, total non-EU exports grew by £17 billion (4%), with services up by £39 billion (35%) but goods down by £22 billion (8%).
  • Goods exports to the EU fell by £22 billion (13%) and to the non-EU by £22 billion (8%).
  • Services exports to the EU were up by £10 billion (8%) with a much bigger increase of £39 billion (35%) in exports to non-EU markets.
• Total imports increased £30 billion (4%) where a £49 billion (22%) increase in services imports offset and exceeded a fall in goods imports of £19 billion (4%).
  • Total imports from the EU grew by £13 billion (3%), with services up by £14 billion (13%) and goods down by £1 billion (0%).
  • Total non-EU imports grew by £17 billion (5%), with services up by £35 billion (32%) but with goods down by £18 billion (12%).
  • Goods imports from the EU hardly changed but non-EU goods imports fell by £18 billion (12%).
  • Services imports from the EU were up by £14 billion (13%), but non-EU imports increased by much more: £35 billion (32%)

Figure 5.37: UK changes in £ billions – 2023 vs 2018

Figure 5.38: UK changes in percentages – 2023 vs 2018

Source: ONS, Breakdown of Trade data, 28 March 2024

Impact on SMEs

SMEs (enterprises with less than 250 employees and annual turnover less than €50 million) play an important role in UK trade and have been adversely affected by the TCA.

To give an idea of the importance of SMEs to goods trade, in 2022 (the latest available government data), SMEs contributed 32% of the UK’s total import value and at least a 26% share of total value of goods exports (a further 16% was attributed to businesses of unknown size). Research by the Federation of Small Businesses (FSB) in 2018 found that 77% of SMEs were part of wider supply chains.

Challenges

A comprehensive survey by the FSB (2023) documented the difficulties facing SMEs in dealing with the TCA. Nine per cent of SMEs surveyed had stopped either exporting to or importing from the EU since 2018.

The top challenges facing traders were:

• High shipping costs (61%), losses and delays in transit (54%) and lack of clear guidance (45%).
• Supply chain disruption was driving costs and reducing availability:
  • Most small businesses had experienced cost increases (81%) and lower availability (60%) of goods that originate from outside the UK.
  • Many had been forced to absorb costs (40%) or increase prices (56%).
• SMEs that used to import or export to the EU but had stopped within the past five years did so because of the volume of paperwork (56%), overall costs (49%) and supply chain or logistical issues (29%).

Reduction in SMEs trading internationally

From 2021 to 2023, the number of UK businesses trading internationally in goods reduced by 13,000 (4%) from 363,000 to 350,000 (see Table 5.6, line 4). Most of these companies will have been SMEs because there are only about 8,000 large enterprises in the UK (with 250 or more employees).

Note that HMRC changed its methodology for counting UK traders in goods in 2021 and advises caution when comparing its new figures with earlier ones (hence the break in Table 5.6).

Between 2018 and 2020 (on the old basis), there was a 23,000 (15%) reduction in the 150,000 firms trading solely with the EU, and a 20,000 (24%) rise in the 83,000 firms trading solely with the non-EU.

The recent 13,000 decline was made up of:

• 9,000 (7%) firms trading goods solely to the EU from (a fall from 125,000 to 116,000) – line 1;
• 4,000 (3%) of those trading with non-EU countries (a fall from 122,000 to 118,000) – line 2; and,
• No change in firms trading with both EU and non-EU – stable at 116,000 – line 3.

By 2023, the 350,000 UK firms who traded internationally were split fairly evenly between those who traded with the EU, with the non-EU and with both. This was a big change from 2016 when nearly half of trading firms traded exclusively with the EU (138,000 out of 283,000). By 2018 it was still half, but by 2023 it had dropped to a third.

In 2016, a further quarter traded with both the EU and the non-EU. By 2018, this group had risen to a third (as it still was in 2023). A variety of factors will have caused the changes. For example, some SMEs diversified away from trading with the EU in anticipation of Brexit, whereas other SMEs, who had learnt how to comply with non-EU trade rules, probably decided to extend their expertise to trade with the EU.

In the period 2021 to 2023, the numbers of firms importing and exporting changed as follows:

• those only importing fell from 219,000 to 207,000 – line 7;
• those only exporting remained fairly stable growing from 37,000 to 38,000 – line 8; and,
• those importing and exporting remained fairly stable dropping from 106,000 to 105,000 – line 9.

From 2021 to 2023, the main changes were falling populations of sole importers from either the EU or non-EU, and rising exporters to both EU and non-EU. The population of SME exporters who exported solely to the EU or the non-EU remained stable:

• imported solely from the EU dropped by 7,000 (8%) from 89,000 to 82,000 – line 12;
• imported solely from the non-EU, dropped by 6,000 (6%) from 104,000 to 98,000 – line 18;
• exported solely to the non-EU remained stable at 14,000 (line 19) and those who did both increased by 1,000 (13%) to 6,000 – line 20;
• traded both with the EU and non-EU remained fairly stable with no change in 27,000 importers (line 15) increase of 1,000 (13%) in exporters to 6,000 (line 16) and a 1,000 fall in those who did both from 84,000 to 83,000 (1%) – line 17;
• exported solely to the EU remained stable (18,000) (line 13), as did those who did both (18,000 falling to 17,000) – line 14.

UK exporters felt the impact of the TCA first, but, for EU exporters to the UK, most the effects of trade barriers have been delayed until 2024. However, the reduction in importers probably indicates UK SMEs dropping out of international supply chains, where these firms had previously imported intermediate components destined for export. The changes also reflect the time it takes for complex supply chains to readjust to Brexit.

Reduced product varieties

There was also reduced SME trade as a result of a 20-42% loss in the product varieties of goods being exported to the EU. This occurred in the first fifteen months of the TCA over 2021 and the first quarter of 2022. The researchers at Aston Business School concluded that many of the negatively affected exporters were likely to be resource-constrained SMEs who exported single products or a limited range of products. They argued that the decline had unfolded in three ways:

• some exporters have ceased to export to the EU;
• continuing exporters have streamlined their product lines, focusing on their core products; and
• fewer new exporters are entering the EU market. This decline has been accompanied by an increased concentration of export values to fewer products and by larger exporters.

The authors warned that one of the most serious implications of reduced SME trade with the EU is the threat to the UK’s historically strong integration in Europe’s supply chains.

Table 5.6: UK importer and exporter populations

(Rounding differences mean that totals do not always sum.)

Sources:
Department of Business and Trade, Business population estimates for the UK and regions 2023: statistical release, 5 October 2023
HMRC, Customs Importer and Exporter Population 2023, published April 2024
Aston Business School, How did Brexit affect UK trade?, authors: Jun Du, Emine Beyza Satoglu & Oleksandr Shepotylo, 23 March 2023
Federation of Small Businesses, Customs Clearance: the road to seamless trade for small businesses, March 2023

Last updated on 29th March 2025 by Richard Barfield