Brexit will have a “sizeable impact” on UK global trade

More that half of British business have been negatively affected by Brexit and the uncertainties it caused, this is what a survey by London School of Economics found out.

Brexit and Coronavirus had a strong impact on British economy and export trade from the UK and latest not-so-encouraging data confirm it. London School of Economics’ Centre for Economic Performance analyzed trade data over the last months and the results do not reassure. More than half of British firms are experiencing difficulties in terms of competitiveness due to the Brexit, which has lead to a rise in prices.

Brexit impact on trade in numbers

A study by London School of Economics found that more than three out of five British firms (61 per cent) are embarrassed by Brexit. Costs have indeed increased since the UK left the EU and, in turn, forced firms to raise prices for costumers. This adds to the introduction of customs charges for EU countries. Overall, the result is a loss of competitiveness. This is why almost a quarter (24 per cent) of exporting firms have suffered a drop in sales towards the EU and, on the other hand, one-third reported that imports from the European continent went down.

London School of Economics analyzed real-time data from CBI up to April. This wider time frame allowed LSE to consider not just the teething problems, but also the long-term consequences of Brexit.

The transition out of the single market and customs union caused delays for 37 per cent of UK firms. 36 per cent reported had borne additional customs and administrative fees. Moreover, 22 per cent reportedly went through higher levels of regulatory checks.

But problems don’t come only from the UK/EU border. 20 per cent of firms also experienced difficulties transporting goods to Northern Ireland.

16 per cent of businesses said they had to face additional duties to export goods outside the UK, although Prime Minister Boris Johnson assured that his Trade and Cooperation Agreement with Brussels implied no new costs.

The reasons

The study suggested that the cause may be a general uncertainty about the new tariff policy. It could also result from the fact UK Government managed to conclude 63 of the 70 trade agreements with foreign countries which it benefited as an EU member.

According to the survey, it is “likely that Brexit will have a sizeable impact on services trade.”

“The percentage of firms reporting Brexit issues relating to trade in services is lower than those relating to goods trade, but a sizeable proportion of firms report difficulties in services trade despite a four-year period to prepare for these barriers”.

Co-author Swati Dhingra added: “The evidence in our report shows that Brexit played a role in the sharp drop in UK trade in 2021, with a sizeable share of firms experiencing issues in trading with the EU such as delays at the border and burdensome administrative costs. This has translated into rising costs, higher prices and reduced competitiveness.

“The government should seek to support businesses in the transition to new trading relationships and to ensure that the increase in border costs is minimised.”

The future

Coronavirus effects on British economy must be also considered. The true impact of Brexit is may have been covered by post-pandemic effects, which led to a “notable increase in economic activity” in April.

Some sectors are reportedly more optimistic about the next trimester than they have ever been since the outbreak began.

“Investment in both physical and human capital will be crucial to the long-term adjustment to Covid-19 and Brexit,” said author Josh De Lyon. “We find that in the manufacturing sector, more firms expect to increase expenditure on worker training and innovation in the next 12 months than to decrease it – a reversal of the situation a year ago.

“But in the services sector, which includes hospitality and retail, firms are less optimistic. Data from January 2021 shows more services firms expected to reduce spending on training than increase it over the next three months.

“Evidence from previous economic shocks suggests that people who remain in businesses or industries hit by the shock suffer more than those who are able to make a transition to other industries. Training programmes and adjustment assistance can help to ease such transitions.”