Brexit, how has trade with the UK changed?

By Marta Bonati, Country Manager of Ebury Italia

With effect from January 1, 2021, the United Kingdom has permanently withdrawn from the European Union (Brexit), after a long negotiation process. This has led to a range of changes that have impacted not only people’s daily lives, particularly how to travel, study and work in the UK, but also international trade, with consequences for businesses and consumers. In fact, trade rules between the UK and the EU have changed radically: before Brexit, the UK was part of the single market and the EU Customs Union, meaning there were no tariffs on goods traded between the UK and other EU countries. However, post-Brexit new barriers to trade were erected with the introduction of customs controls and duties on goods crossing the UK-Ur border. This has resulted in higher costs for businesses operating in the UK and reduced the ability of UK manufacturers to compete in international markets.

According to initial estimates from the Office for National Statistics (ONS), UK exports to Europe fell by 75% in January 2021 compared to December 2020 for food and 25% for the medical sector. Certainly the pandemic has also affected the import-export balance, but the fact remains that Brexit has played a fundamental role.

As a result, after the UK lost access to the EU single market and its extensive network of trade deals with third countries, it has started negotiating new trade deals with countries outside the EU. So far, it has concluded trade agreements with several countries, including Japan, Canada and Singapore, and more recently with Switzerland. However, these deals have not yet fully compensated for the loss of access to the EU single market, the UK’s main export market.

Of all EU countries, relations with Ireland have been the most troubled in recent years. Ireland is a member of the EU, shares a land border with the UK via Northern Ireland and has always been a major trading partner for the UK. Before Brexit there was strong economic integration between the two sides, but post-Brexit customs controls were introduced at the border between Northern Ireland (part of the UK) and the Republic of Ireland (part of the EU). This has created significant economic uncertainty for companies operating in both parts of the island.

However, a few weeks after the signing of the Windsor Framework, which regulates trade between Northern Ireland and the EU and finally reconnects the EU and the UK, we have seen a rebound in food and drink export sales. Most categories have surpassed pre-pandemic levels, hitting a record £24.8 billion. Exports to Europe rose 22% to £13.7 billion (over €15.4 billion) and emerging markets also did well, with fast-growing economies like Vietnam nearly doubling. For the first time, exports to non-EU markets broke the £10 billion mark, reaching £11.1 billion (over €12.5 billion).

But the consequences of Brexit are not over yet: the UK’s exit from the European Union has brought important changes for operators, including with regard to the conformity labeling for products intended for the English market. From 1 January 2021 a new type of marking called UK Conformity Assessed (UKCA) came into effect, certifying that goods have been manufactured in accordance with safety and compliance standards set by the UK. However, there is a transition period until 31 December 2024 and the obligation to use the UKCA mark has been postponed to 2025, giving companies the choice of using the UKCA mark instead of the Ce mark. You will continue to enjoy considerable flexibility as to the decal to be applied.

In summary, international trade with the UK has been radically affected by Brexit, with consequences for businesses and consumers around the world. New trade barriers have been introduced between the UK and the EU, but also new trade opportunities with countries outside the EU. Nonetheless, the Office for Budget Responsibility (OBR) has stressed that UK trade has been negatively impacted by Brexit. In particular, both imports and exports over the long term will be around 15% lower than the number of transactions the UK could have done if it had stayed in the European Union. This data is also confirmed by developments in the real economy, as British exports to the European Union fell by 16% at the end of 2022. In addition, according to International Monetary Fund estimates, the United Kingdom will be the only G7 country with negative growth in 2023 (-0.6%) and will grow the least among the G20 countries along with Russia.

However, the situation is still evolving and the long-term consequences of Brexit for international trade remain uncertain. In this context, it should be noted the new trade agreements signed by the UK government with non-European countries have brought no tangible benefits, as they merely replicate agreements that the UK could already benefit from as a member of the EU.