Brexit cost the UK $27 billion in trade losses in the first two years. Brexit

The damage caused by Brexit to its trading relationship with the EU has cost the UK $27 billion in the first two years, but the overall impact has been predicted to be lower than expected, according to the most comprehensive review of the issue since Britain initially left the bloc entirely. It was more limited than they first assumed. 2021.

Researchers at the London School of Economics found that trade barriers have been disastrous for small and medium-sized businesses, causing thousands to stop doing business with EU countries.

Scholars at the Center for Economic Performance examined evidence from more than 100,000 businesses and found that by the end of 2022, two years after the UK signed a Trade and Co-operation Agreement (TCA) with Brussels, Britain's total goods exports would rise by 6.4%. %, income is 3.1%.

An assessment by the Office for Budget Responsibility (OBR) predicted that the UK would suffer a 15% decline in trade over the long term, leading to a 4% decline in national income.

CEP researchers said the UK could still experience a fall of the size predicted by the OBR, the government's independent economic forecaster, but exports and imports with the UK's biggest trading partners would need to worsen further.

Thomas Sampson, one of the report's authors, said: By the end of 2022, the TCA would have reduced trade in goods by less than half what the OBR had projected. That said, the OBR figures are long-term projections and we only study the first two years of the TCA.

It remains to be seen whether the decline in trade will increase over time. However, to be consistent with the OBR forecast any further declines would need to be larger than we have seen so far.

Rachel Reeves is likely to welcome the findings, which show the economy's resilience in the face of large-scale trade shocks. But it will also put pressure on the Prime Minister to support efforts to lower trade barriers in the coming years to prevent the damage from worsening.

When the OBR reviews previous forecasts, the inclusion of a relatively brighter outlook for UK trade could lead to higher growth forecasts.

The UK is expected to begin negotiations on the next phase of the TCA next year. Ministers are expected to resist British demands to open agricultural markets to competition from EU farmers and fishing boats in return for greater access for British products to the EU.

Examining the first two years of the TCA, the authors said it was clear that large companies mostly performed at the same level of trading as their EU partners.

However, small exporters with less than 100 employees faced serious difficulties. More than 14,000 of the 100,000 companies surveyed have stopped trading with the EU entirely. Almost all of them were small and medium-sized businesses.

Imports have held up better than exports since big companies found ways to source parts and raw materials from countries outside the EU.

Sampson, associate professor of economics at LSE, said: The TCA has been a disaster for small exporters, many of whom simply stopped exporting to the EU. At the same time, large companies have adapted well to new trade barriers. As a result, overall exports have declined less than expected, at least so far.

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This study is the first to study the impact of Brexit on trade using customs records collected by HMRC. The researchers said the customs data allowed them to look at individual business relationships and highlight how larger companies had adapted better to new trade relationships than smaller companies.

The TCA did not include tariffs. However, this has introduced trade barriers such as customs checks and paperwork, rules of origin requirements, excise duties, sanitary and phytosanitary checks for movement of animals and plants, and the need for exporters to demonstrate that their products comply with their country's regulations. . Destination market.

But many of these checks have been repeatedly delayed, and further measures are due to be implemented next year.

The study examined only trade in goods, excluding imports and exports of services, which are mainly outside the jurisdiction of the single market and customs union.

Kalina Manova, co-author and professor of economics at UCL, said: In the medium to long term, companies' performance will depend on their ability to maintain supply networks and diversify export demand in the face of high and uncertain non-tariff barriers to the EU. transaction.

The report said the UK left the EU single market and customs union in early 2021, resulting in an immediate decline in imports and exports to and from the EU. However, we also show that firms responded to these shocks in ways that mitigated the decline in overall trade. While large firms did not experience a decline in exports, importers partially compensated for the decline in EU imports by sourcing more from outside the EU.

As a result, we find that aggregate trade is somewhat resilient to disruptions, at least in the short term.

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