Brexit hit to UK trade less than predicted, says study

Brexit has had less of a hit on UK trade than many forecasters predicted, thanks to bigger companies adjusting to red tape at the border, according to research from the London School of Economics.

The researchers estimated that global exports and imports of UK goods fell by 6.4 per cent and 3.1 per cent respectively between 2020 and 2022, compared with forecast levels for the rest of the EU, according to the first analysis of trade data by HM Revenue & Customs. : two years later Brexit:.

A report by economists at the LSE’s Center for Economic Activity concluded that while the EU-UK Trade and Partnership Agreement signed in 2020 “certainly reduced trade”, the fall was “smaller than forecasters had expected, at least in the short term”.

According to the LSE, the fall in trade due to Brexit amounted to a £27bn drop in exports and £20bn lower imports in 2022.

However, while the report shows that larger businesses have been more resilient, smaller firms have been hit hard, with more than 16,400 businesses opting out of exporting to the EU after 2021.

Thomas Sampson, co-author and associate professor of economics at the LSE, said that while the 6.4 per cent reduction in total goods exports was “not insignificant”, it was still smaller than many pre-Brexit studies had predicted.

He added that the TCA “has been a disaster for small exporters” as many have stopped exporting to the EU altogether, but “at the same time, larger companies have adapted well to the new trade barriers”.

The LSE’s findings, which are limited to trade in goods, will add to the increasingly contentious debate over the economic impact of Brexit, which was initially overshadowed by the Covid-19 pandemic, which caused massive disruption to global supply chains, and other methodologies. simulated larger shocks.

Economists at Aston University have appreciated Annual EU exports are 17% lower and imports 23% lower than if Brexit had not happened, with the negative impact increasing in 2023.

In contrast, the LSE report estimates a drop in the value of EU exports of just 13.2 percent, using different modeling methods and a narrower sample.

Jun Du, professor of economics at Aston University, said he thought the LSE figures were likely to be an understatement because the analysis focused on companies that were already strong enough to trade with the EU and the rest of the world.

“These companies are the survivors, so if you infer the negative impact of Brexit from just the good companies, you get a rosier picture,” he added.

The Office for Budget Responsibility still estimates that Brexit will hit GDP by 4 per cent in the long term, not only from trade but also from lower investment and productivity in the UK economy.

On trade, the OBR predictionLast updated in May, the UK’s total exports and imports of goods and services will be “15 per cent lower in the long term.” The OBR declined to comment on the LSE paper.

The LSE said that while there was “early evidence” that companies were adjusting to life outside the EU, the effects of Brexit would depend on the longer-term effects of the TCA, which “have yet to be fully implemented”.

The business warned the so-called The effects of “Brexit 2.0”.New EU regulations, such as carbon border taxes or new supply chain reporting requirements, make trading with the bloc more difficult over time.

However, even allowing for these future impacts, the LSE’s Sampson said they would need to increase significantly for the OBR’s forecast of a 15 per cent long-term hit to imports and exports to prove correct.

Sampson added that while larger businesses initially adapted better than expected, that doesn’t mean they don’t face higher costs and lower productivity as a result of dealing with the new customs procedures.

“Adjusting to new trade barriers creates additional costs for businesses that are likely to show up as lower productivity,” he added. and they are obviously hurt.”

The government has taken many steps to help small businesses, including the Export Support Service, which was launched in 2021, the spokesperson added.