There is ‘no evidence’ of a sustained decline in UK exports to the EU since the post-Brexit trade deal came into force, a report published by the London School of Economics (LSE) today (26 April) has claimed.

The paper titled ‘Unravelling deep integration: UK trade in the wake of Brexit’ claims sales into Europe have remained strong, despite a 25% relative decline in imports from the bloc compared with the rest of the world.

EU exporters hit harder

The study of 1,200 product lines by the Centre for Economic Performance (CEP) at LSE, found that in the first year of the UK’s post-Brexit trade agreement with the EU, firms on the continent lost a greater percentage volume of trade than exporters from the UK, Sky News reports.

Exports to the EU avoided a sustained decline by the same measure, with a smaller and only temporary drop.

SMEs impacted

The research suggests that the biggest impact may have been felt across smaller companies, with a “sharp drop” in the number of trade relationships between UK exporters and EU importers. 

“Lower value relationships [have been] hit particularly hard,” the authors claim, adding that “the UK simply stopped selling a lot of products to smaller countries in the EU”.

SMEs stop exporting

The FT highlights a fall by a third in the number of relationships between buyers and sellers after the introduction of the TCA in January 2021.

Smaller firms have struggled to absorb customs controls, VAT and new regulatory requirement, with many quitting exporting, according to the report.

Temporary change

Economists have told the Telegraph that the report’s findings may partially reflect “temporary changes as firms adjust to the new trading environment”.

“It may be several years before the economy fully adjusts to the increase in trade, investment and migration barriers under the TCA,” the report also said.

However, Thomas Sampson, associate professor of economics at LSE, said: “The Trade and Cooperation Agreement has increased trade costs... These changes make the UK a harder place to do business.

Questions

Sampson said the findings raised worrying questions about where future growth in trade would come from.

“If you kill off those exporting relationships it may lead to lower future export growth,” he said.

UK exports to the EU have now recovered to pre-pandemic levels, but this “masks a steep decline in the number of varieties [of goods] exported, driven by the exit of ‘small’ varieties that account for a low share of total exports”, the report said.