New Brexit rules caused major shock to UK-EU trade - report

The introduction of new post-Brexit trading rules last year caused a "major shock" to UK-EU trade, a study claims.

The research from the LSE Centre for Economic Performance found UK imports from the EU fell by 25% relative to those from elsewhere in 2021.

Its authors suggest new rules had also caused many UK firms to stop exporting to the trade bloc.

The government said it was ensuring businesses had the support they need to trade with Europe.

Thomas Prayer of the LSE called the decline in exports to the EU "remarkable".

"It appears the UK simply stopped selling a lot of products to smaller countries in the EU," he added.

Researchers also described the findings as "surprising", given that Brexit had a greater impact on imports than exports in 2021 and the UK has delayed the introduction of many customs checks on EU goods until this year.

"The number of export relationships with the EU fell sharply in 2021," said Rebecca Freeman, co-author of the report and associate of the Centre for Economic Performance's (CEP) trade programme.

Analysis of changes in trade patterns for 1,200 products found a "sharp drop" in the number of trade relationships between UK exporters and EU importers, with "lower-value relationships" affected.

The researchers behind the report say that extra red tape, customs controls and taxes may have hit European businesses hard.

Full border checks are still yet to be implemented though. They have been delayed until July and there have been suggestions they might be put back again.

While exports to the EU appear to have recovered after falling earlier in 2021, the authors argue that this reflects an increase in sales of costly large machinery.

The total variety of goods sold has declined by 30% - perhaps because the cost of extra administration making selling low-value items less attractive for smaller businesses.

The government may have its ambitions sighted further afield for Global Britain - deepening ties with the US, and the growing Pacific Rim nations - but two-fifths of the UK's overseas customers remain closer to home, in the EU.

The recovery in level of exports towards the end of last year suggests many British exporters have successfully got to grips with the extra red tape - paperwork and checks. But that rebound partly reflects the sale of bulky, expensive items such as machinery.

Beyond that, a sharp drop in the variety of goods sold tallies with surveys which have shown some smaller exporters, particularly those selling lower value items, may have given up selling to Europe as the costs of the formalities prove prohibitive.

That's problematic for two reasons. First because it's those small exporters which are the engine of trade growth, the success stories of tomorrow. And second, as the government's own forecasters note, the new trade agreements struck with the likes of Australia and New Zealand are not yet sufficient to greatly boost the UK's trade prospects.

It's a reminder, even as exporters discover new markets, that reducing obstacles in existing ones remains an issue for some.

The government's fiscal watchdog recently said that the UK had "missed out" on much of the post-pandemic economic rebound enjoyed by other countries in the G7 due to Brexit.

The CEP's report does, however, only analyse the first year of trade under the new Trade and Cooperation Agreement (TCA) and does not capture long-term effects.

Martin McTague, chair of the Federation of Small Businesses, said more should be done to help businesses with increased paperwork, adding: "Small business must be at the centre of free trade agreements."

A government spokesman said that it was supporting firms that trade with Europe as well as helping them "seize new opportunities" presented by new trade deals.

"Given the impact of Covid-19 on global supply chains, we have been introducing import controls in phases throughout 2022 in order to give businesses more time to prepare," they added.

"Through our targeted multimedia campaign and a series of sector-based webinars, businesses are also signposted to the relevant import information and support to help them."