The impact on UK trade from Brexit was smaller than expected.

A study by the London School of Economics found that Brexit had less of a hit on UK trade than many forecasters expected, thanks to big companies adapting to border bureaucracy.

According to an analysis of company-level trade data by HM Revenue & Customs, researchers estimated that the UK's global exports and imports of goods fell by 6.4% and 3.1% respectively between 2020 and 2022. This compares with expected levels for countries remaining in the EU. Two years after Brexit.

The report, written by economists at the LSE Center for Economic Performance, concluded that while the EU-UK Trade and Cooperation Agreement signed in 2020 undoubtedly reduced trade, the decline was smaller than forecasters expected, at least in the short term.

According to LSE, the trade loss due to Brexit amounted to a $27 billion reduction in exports and a $20 billion reduction in imports in 2022.

However, the report said that while larger businesses have proven to be more resilient, small and medium-sized businesses have been hit hard, with more than 16,400 businesses suspending exports to the EU since 2021.

Thomas Sampson, co-author and associate professor of economics at LSE, said the 6.4% decline in overall goods exports was not trivial, but was still smaller than many pre-Brexit studies had predicted.

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

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The LSE findings, which are limited to trade in goods, will add to the increasingly contentious debate over the economic impact of Brexit. The impact on UK trade was initially overshadowed by the COVID-19 pandemic, which has caused massive disruption to global supply chains and further hit other methodologies.

Economists at Aston University estimated that the negative impact will increase over 2023, with annual exports to the EU being 17% lower and imports falling 23% behind compared to if Brexit had not occurred.

In contrast, the LSE report, using different modeling techniques and a narrower sample, estimated that the value of goods exported to the EU fell by just 13.2%.

Jun Du, an economics professor at Aston University, said the LSE figure was likely an underestimate because the analysis focused on companies already strong enough to trade with the EU and other countries.

Extrapolating the negative impact of Brexit only from good companies can give a rosier picture, she added, because these companies are survivors.

The Office for Budget Responsibility estimates that Brexit will deliver a 4% long-term hit to GDP, not only because of trade, but also through reduced investment and productivity in the UK economy.

On trade, the UK's total imports and exports of goods and services are expected to fall by 15% over the long term, according to OBR forecasts, last updated in May. The OBR declined to comment on the LSE paper.

The LSE said there was early evidence that businesses were adapting to life outside the EU, but the impact of Brexit would depend on the longer-term impact of the TCA, which had not yet been fully realized.

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Businesses have warned of the so-called Brexit 2.0 effects. New EU regulations, such as carbon border taxes and new supply chain reporting requirements, are making trading with the bloc more difficult over time.

But even taking these future impacts into account, LSE Sampson said the figures would need to increase significantly if the OBR's forecast of a 15% long-term hit to imports and exports was to prove accurate.

Sampson added that while larger companies initially adapted better than expected, this did not mean they did not face higher costs and reduced productivity as a result of dealing with new customs procedures.

He added that adapting to new trade barriers will likely result in additional costs for businesses, which will likely translate into lower productivity. There are also risks to future trade growth. Because the large exporters of tomorrow are the small exporters of today and we know that they have clearly suffered.

The Cabinet Office said the government had taken a number of steps to help small and medium-sized businesses, including an export support service launched in 2021. We want to reset relationships with our European friends, remove trade barriers and make Brexit possible for the British people. , the spokesperson added.

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