The City’s strength has helped power the UK’s strength in services since Brexit, a new report shows, but overall trade has still taken a hit.
According to the report, UK in a Changing Europe (UKICE), UK services trade has been more resilient than almost all other advanced economies since Brexit.
Imports of services have increased 42 per cent in nominal current price terms since February 2020, while exports of services have increased nearly 29 per cent.
The boom in services trade has been driven by ‘other business services’, which includes accountancy, management consultancy and legal services.
Unlike finance, these services are less reliant on EU membership and so Brexit has imposed fewer costs. Business services are generally less heavily regulated than financial services and so the barriers to exchange are often lower.
‘Other business services’ has now overtaken machinery and transport to be the UK’s largest export sector.
Goods trade, however, has performed much worse since leaving the EU. In particular, chemicals and fuel trade has been on a steady downward trend as a share of GDP since the early 2010s.
The report noted that UK trade with the EU has been more resilient after Brexit than many forecasts suggested, but still suggested the UK’s departure has had a meaningful impact.
It said that if the UK’s exports to the EU had grown at the same rate as intra-EU trade, EU exports would be 27 per cent higher in August 2023. Trade with the EU in areas which are more tightly regulated – such as finance and transport – has also been weak, the report said.
The report pointed out that the global economic environment is less open to trade than it was when the UK left the EU. Both the EU and the US have increasingly made trade decisions based around their security interests, such as through the Inflation Reduction Act and the EU’s green industrial strategy.
“The dilemma for the UK is that it has to recognise this when negotiating its own trading relationship with them,” the report said.
Stephen Hunsaker, researcher at UKICE said: “The landscape of UK trade has irreversibly changed and the UK continues to become a service-oriented economy. Brexit looks to have only exacerbated that shift.
“The ever changing geopolitical environment makes it clear that the UK cannot rely on previous ideas of ‘Brexit freedoms’, like new free trade agreements, as the end-all-be-all,” he continued.