Study says Brexit has affected UK trade less than expected

Brexit has hurt UK trade less than many forecasters expected, thanks to big companies adapting to red tape at the border, according to research by the London School of Economics.

The researchers estimated that British exports and imports of goods worldwide fell by 6.4 and 3.1 per cent respectively between 2020 and 2022, compared with levels expected for the remaining EU country, according to an analysis of firm-level trade data from HM Revenue & Customs for the first time. Two years later Britain’s exit from the European Union.

The report by economists at the London Stock Exchange’s Center for Economic Performance concluded that while the EU-UK Trade and Cooperation Agreement signed in 2020 “undoubtedly caused a decline in trade”, the decline was “at least in the short term, less than expected.” Forecasters.”

The fall in trade as a result of Brexit was £27 billion in exports and a £20 billion drop in imports in 2022, according to the London Stock Exchange.

However, while the report found that larger companies proved more resilient, small businesses were hit hard with more than 16,400 companies stopping exporting to the EU after 2021.

Thomas Sampson, co-author and associate professor of economics at the London School of Economics, said that while the 6.4 percent decline in total goods exports was “not trivial,” it was still lower than many studies had predicted before Brexit.

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

The results of the London Stock Exchange, which is limited to commodity trading, will add to the increasingly contentious debate about the economic impact of Brexit. UK trade was initially overshadowed by the Covid-19 pandemic, which caused massive disruption to global supply chains, and other approaches were even bigger blows.

Economists at Aston University have done so estimated Annual exports to the EU are 17 percent lower and imports 23 percent lower than if Brexit had not happened, with the negative impact increasing through 2023.

In contrast, the London Stock Exchange report estimated a decline of only 13.2 percent in the value of goods exported to the European Union as a result of the use of different modeling techniques and a narrower sample.

June Doe, professor of economics at Aston University, said the LSE figures were likely to be an underestimate because the analysis focused on those companies that were already strong enough to deal with the EU and the rest of the world.

“These are the companies that have survived, so if you extrapolate the negative impact of Brexit only from good companies, you get a rosier picture,” she added.

The Office for Budget Responsibility still estimates that Brexit will cause GDP to fall by 4 per cent in the long term as a result of the effects not only on trade, but also reduced investment and productivity in the UK economy.

Regarding trade, OBR’s Climate predictionlast updated in May, was that the UK’s total exports and imports of goods and services “will fall by 15 per cent in the long term”. The OBR declined to comment on the LSE paper.

The LSE said that while there was “early evidence” of companies adapting to life outside the EU, the effects of Brexit would depend on the longer-term effects of the TCA which “have not yet been fully realised”.

Businessmen have warned about the so-called The effects of Brexit 2.0.With new EU regulations – for example carbon taxes at the border or new supply chain reporting requirements – making it more difficult to trade with the bloc over time.

However, even taking into account these future impacts, LSE’s Sampson said they would have to increase significantly for the Office for Budget Responsibility’s forecast of a long-term 15 per cent hit on imports and exports to prove correct.

Sampson added that although major companies have initially adapted better than expected, that does not mean they are not facing higher costs and lower productivity as a result of dealing with the new customs procedures.

“Adapting to new trade barriers creates additional costs for businesses, which are likely to manifest in the form of lower productivity,” he added. “There is also a risk to future trade growth, because we know that the big exporters of tomorrow are the small exporters of today, and they have clearly suffered.”

The Cabinet Office said the government had taken several steps to help small businesses, including an export support service launched in 2021. It added: “We want to reset the relationship with our European friends, tackle barriers to trade and make Brexit a success for Britons.” “. A People’s spokesperson added.