Brexit and what works for the UK economy

In a blog for the Centre for Economic Performance, a group of economists, including CAGE Impact Director Professor Dennis Novy, review the effect of Brexit on recent trade performance. They argue that the next UK government should acknowledge the costs of diverging from EU trading rules and recognise that the importance of the EU market for the British economy cannot be fully compensated by trade with non-EU countries.

Brexit caused major changes in UK trade policy, most notably the UK’s exit from the European Union’s (EU) single market and customs union at the start of 2021. UK-EU relations are now governed by the Trade and Cooperation Agreement (TCA) – a comprehensive free trade agreement that ensures zero tariffs and zero quotas on UK-EU goods trade. Overall, the performance of UK trade has been encouraging for services, but the performance of UK goods trade has been disappointing. There are early signs that UK supply chains with the EU may be disintegrating. This should not come as a surprise since goods trade is where Brexit has introduced most new trading frictions.

The UK is now less integrated with EU countries, and there are new costly non-tariff barriers for UK firms trading with Europe. The next government has a decision to make: continue to diverge from EU regulations and have more trade barriers go up, or change approach and improve EU trade relations.

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