Brexit: UK trade is 15% lower compared with remaining in the EU, OBR finds

The UK’s goods trade is lagging far behind the rest of the G7, while services are booming.
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The UK’s imports and exports continue to be 15% lower due to Brexit, the Office for Budget Responsibility has found.

As part of its post-Budget analysis, the fiscal watchdog has assessed the impact of the UK leaving the European Union and how this has affected trade. It says its prediction of a negative impact on the economy is proving true, and the full effects of Brexit won’t be felt for 15 years.

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While Britain’s financial services trade continues to outperform its competitors, the country’s goods trade has plummeted well below all other G7 countries. The UK’s trade intensity has also dropped below the G7 average.

The OBR said: “Since the June 2016 EU referendum, our forecasts have assumed that the volume of UK imports and exports will both be 15% lower than if we had remained in the EU. We assume that the resulting reduction in the trade intensity of GDP will lead to a 4% reduction in the potential productivity of the UK economy (relative to remaining in the EU), with the full effect felt after 15 years. 

The OBRs graph on trade intensity. Credit: OBRThe OBRs graph on trade intensity. Credit: OBR
The OBRs graph on trade intensity. Credit: OBR

“A decline in trade intensity plausibly lowers productivity because trade, among other channels, fosters competition and allows countries to specialise in activities where they are relatively more efficient.”

The analysis came following a Budget with Chancellor Jeremy Hunt desperate to find growth. The economy has tipped into recession, while the government is struggling to sign impactful free-trade agreements around the world and supplant EU trade. 

Goods trade has dropped well below the rest of the G7 while services are still performing strongly. Credit: OBRGoods trade has dropped well below the rest of the G7 while services are still performing strongly. Credit: OBR
Goods trade has dropped well below the rest of the G7 while services are still performing strongly. Credit: OBR
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The independent fiscal watchdog found that while the trade intensity of other G7 countries is now above pre-pandemic levels, the UK’s is still stuck below that figure. The OBR said: “More stringent regulation of trade flows, the expectation of further regulatory tightening, and uncertainty over future trade policy may all have weighed on trade between the UK and EU over this period.”

The OBR said that its 15% loss in imports and exports was proving to be accurate. The report added: “The full implementation of the TCA will further increase barriers to trade in goods with the EU. We expect the total impact of Brexit to be realised several years after full implementation of these barriers.”

Businesses have been telling NationalWorld how this trade friction has been impacting them directly. This year, additional checks have been introduced for animal and plant products being imported from the EU. 

Seed supplier Paolo Arrigo explained that importing had become much harder following Brexit, and that the new checks would add even more red tape. Arrigo will now have to arrange a phytosanitary certificate and plant passport for each seed variety.

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He is concerned that his orders of seed varieties from different artisan producers will be slapped with multiple fees. “Who's this penalising? Small business,” he told NationalWorld. “This is on top of all the other things we've got to do. There’s gonna be less choice, there's gonna be higher prices - this is not rocket science.”

Today in a speech at Chatham House, the Business and Trade Secretary Kemi Badenoch said that it was unlikely the UK would sign a trade deal with India before the Asian country’s elections. 

"We can actually sign an agreement before the Indian election. I suspect that that is not necessarily going to be the case because I don't want to use any election as a deadline," she said, according to Reuters reports. "It is possible that we can sign, but I'm not using it as a deadline."

Earlier in the day, Badenoch told the Commons on Brexit: “Services exports are booming and we are doing well since leaving the EU.”

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Ralph Blackburn is NationalWorld’s politics editor based in Westminster, where he gets special access to Parliament, MPs and government briefings. If you liked this article you can follow Ralph on X (Twitter) here and sign up to his free weekly newsletter Politics Uncovered, which brings you the latest analysis and gossip from Westminster every Sunday morning.

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