Brexit’s Impact on UK Services Industry
Brexit‘s Shadow: UK Services Exports Hit Hard by New Trade Barriers, LSE Study Reveals
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New research from the London School of Economics (LSE) has provided stark evidence that the UK’s services exports have suffered significantly due to the trade barriers erected by Brexit, directly contradicting claims of a “global Britain” benefiting from new trade relationships.
the Office for Budget Responsibility (OBR) had previously noted a divergence in the strength of the UK’s services exports, with business services like management consultancy, research, and advertising – sectors facing minimal or no Brexit-related barriers – showing robust growth. However, other crucial sectors, including finance and transport, where the impact of leaving the EU’s single market was considerable, did not perform as well. This analysis, however, remained incomplete.
LSE Economists Uncover the Extent of Brexit’s Impact
Picking up where the OBR left off, a team of LSE economists, Shania Bhalotia, Swati Dhingra, and Danyal Arnold, have conducted a extensive study. Their research utilized data that allowed for a detailed comparison of services trade growth across various sectors and between a multitude of country pairs. This enabled them to assess the performance of UK services exports in each sector relative to global trends.The economists also meticulously scrutinized the UK-EU trade and Co-operation Agreement. Their aim was to precisely document which UK services exports encountered new barriers following the implementation of the post-Brexit deal in 2021.
Stark findings: Barriers Lead to Meaningful Export Declines
The results of the LSE study are unequivocal. The OBR’s initial observation that UK services exports facing new brexit barriers performed worse has been strongly validated. The research demonstrates a clear correlation: UK exports to countries with greater trade barriers were hit much harder. In instances where the most extreme barriers were introduced, services exports plummeted by as much as 90 percent.
On average, the study found a 16 percent drop in services exports to the EU in sectors where brexit imposed new trade frictions, when compared to bilateral trade between other countries in the same sectors.
No Compensation from New Trade Deals
The research also addressed the argument that Brexit might have facilitated a strategic shift, allowing British companies to focus more intensely on trade with the US and other non-EU countries. The LSE team’s findings indicate that this has not been the case. the research concluded that UK services exports, five years after Brexit, were 4-5 percent lower than they would have been in the absence of new trade frictions.
In a national context where acknowledging the economic consequences of Brexit has been challenging, the UK has been too fast to celebrate the relative success of certain services sectors. The LSE study suggests that this better performance is not a testament to Brexit’s benefits, but rather a reflection of the UK’s pre-existing specialization in the right industries at the opportune moment, enabling many world-class companies to maintain global sales.
The overarching conclusion from the LSE research is that leaving the EU has resulted in tangible economic harm. The study implies that without Brexit, the UK’s services export sector would have achieved even greater success.