5.2 UK trade and Brexit impact

brexit-fact-base-london — Photo by m.mphoto/Shutterstock

UK’s overall trade deficit was 1.7% of GDP in 2024 made up of:
- trade surplus with non-EU countries of 1.8% of GDP;
- trade deficit with the EU of -3.6% of GDP.
UK trade (exports + imports) was £1.8 trillion in 2024 with deficit of £22 billion (current prices):
- surplus on services of £186 billion was offset by a deficit on goods of £207 billion
- UK’s major trade partner is the EU (46%), followed by the US (18%)
- deficit with EU of £92 billion was largely offset by a non-EU surplus of £70 billion
Within the EU, the Single Market, Customs Union, VAT area and customs cooperation remove most, but not all, trade frictions
- 57.6% of EU trade was with other EU countries (2024)
- only 5.4% of EU trade was with the UK
- however, UK remains an important EU trade partner, ranking third after China and US
TCA might keep tariffs low but creates new non-tariff trade barriers (such as rules of origin and leaving EU VAT area) that create frictions, delays and costs:
- reduce UK-EU trade volumes and profitability
- extra costs for UK government and business, including:
  - one-off cost of installing border infrastructure: £4.7 billion (NAO) + operating costs
  - annual cost of customs declarations: £7.5 billion (HMRC)
  - annual cost to traders of border checks on food and animals: £0.5 billion (HMG)
Significant red tape, costs, delays and supply-chain disruption for SMEs
- 23,000 SMEs stopped trading solely with the EU, 2018 to 2020 (with a further 16,000 SMEs stopping, 2021 to 2024)
Trade in goods is about 15% lower and trade in services about 11% lower than without Brexit
Economic costs of TCA far outweigh benefits of UK trade deals with non-EU countries
- long-run annual cost of Brexit ~4.0% of GDP vs ~0.31% of GDP annual benefits of new trade deals (Australia, NZ, CPTPP, India):
  - potential benefit of a potential US FTA estimated at 0.16% of GDP