A Decade of Trade Friction: How Brexit Reshaped UK Export Markets and Small Business

Not long after the UK left the EU in 2020, a Bristol-based firm called Eskimo started selling a new kind of high-fashion and energy-efficient electric radiator, based on new technology developed by academics in the city. They planned to send them around Europe using the Channel Tunnel. It was a timely product given Europe's green ambitions, and with orders flowing, its Birmingham factory was being kept busy.

The boss Phil Ward tells observers his start-up has continued to grow, but that in his view it could have been so much more without what he calls "the Long Brexit effect": in 2020, 40% of his exports went to the European Union, and by 2025 it was just 5%. The post-Brexit deal agreed with the EU by then-Prime Minister Boris Johnson in December 2020 guaranteed zero tariffs on exports to the EU, but Ward says that despite this, red tape and paperwork not directly related to tariffs were enough to create delays, costs and the expectation of hassle for prospective customers. Eskimo did manage to export some goods to agents in France but it stopped selling directly to European consumers entirely. A planned expansion to Germany floundered.

As Eskimo discovered when it attempted to export towel rails to Australia and New Zealand, both countries abide by international safety standards that are heavily influenced by the EU's CE mark. This matters because one theoretical potential Brexit benefit was that it would allow UK regulators to not follow the EU's safety regulations and take a more pro-innovation, less regulatory approach for high-tech inventions.

Eskimo's experience reflects a broader trend evident in export figures. The UK Trade Policy Observatory at Sussex University calculated a rapid 26% reduction in the different types of UK exports by 2023, while a new study from Aston University Business School using five years of more detailed trade data concludes a loss of 53.8% of the type of exports and 31.5% for imports. These figures for "trade varieties" represent falls in the number of products sent to different EU countries.

A decade ago, many economists argued the UK would sustain longer-term economic damage by leaving the EU, and many believe that damage has come to pass. But assessing that claim requires comparing what did happen with what might otherwise have happened were it not for Brexit—a matter of method and statistical judgment. The period since Brexit has been a time of huge global flux: the pandemic that struck in the spring of 2020, the war in Ukraine that began two years later, and more recently the energy price shock sparked by the conflict in Iran all must be accounted for.

The clear consensus of economists making the calculations say they have factored in the global turmoil when assessing Brexit's impact. Others question their methods and the extent of Brexit's impact. Some of the most negative predictions back in 2016 proved unduly pessimistic—the UK did not experience a sudden recession. But those who believe the UK did sustain longer-term economic damage say the hit was no less profound.

"Among economists there is not much debate, but there still is among policy folks. The experts were right. It was, if anything, worse than we thought, but it's taken longer to get there," says Nick Bloom, a British Stanford University professor and author of one of the most prominent recent major studies using Bank of England data.

Official figures show that compared to 2019, 2025 UK exports to the EU were 14% down and imports were down 10%. Last year was the worst year for UK goods export volumes to the EU this century, apart from one year in the depths of the financial crisis. Think tank Niesr calculates exports were 16.9% lower and imports 16.1% less than what could have been expected based on positive pre-2016 trends. The Centre for European Reform, using a different method to account for what could have happened if the UK had not been excluded from a more recent surge in intra-EU trade, reports a goods trade hit of 16% to exports and 14% to imports.

One area that has performed more strongly since 2016 is services, which make up over 80% of total UK economic output. Services sector exports from the UK to the EU are up 57% over the last decade, driven by accountancy, legal services and consultancy. Non-EU services exports are up 49%. However, there has been a service boom across the advanced world, and some argue Britain might have done even better without Brexit.

Business investment tells a different story. Investment by businesses was significantly lower than what might have continued, according to research. Former Bank of England independent economist Jonathan Haskel calculates a £29bn or 1.3% reduction in the size of the economy from lower investment than would have been expected since 2016. Business investment flattened in real terms immediately after 2016, and notably underperformed various measures of UK long-term trends and comparisons with other countries. Using different methods, the National Institute of Economic and Social Research and the top US economic research body the NBER find that UK business investment is down 12-13% against where it would have been compared to a representative basket of advanced economies.

The most visible sign of economic shock was the fall in the value of the pound in the minutes and years after the referendum. Pre-referendum, the pound had reached new highs against major currencies. It then fell sharply after the referendum and has since traded lower, particularly against the dollar and the euro. The impact of an overall weaker pound raised prices for imported goods, from fresh foods to manufactured goods, but it also helped cushion disruption for exporters by making their goods cheaper in international markets.

One potential Brexit benefit was the UK's ability to sign its own trade deals outside the EU. The UK-India deal stands out as an example where the UK broke ground well beyond what might have happened within the EU. However, it is also the case that the EU has signed deals Britain has not—the Mercosur deal, for example, gives access to EU car exporters to Brazil, the world's sixth biggest market, at zero tariffs, versus 35% for the UK.

The Channel Tunnel serves as a barometer for the broader trade impact. Back in 2016, 1.64m trucks went through the tunnel. Last year, there were 1.16m—nearly 30% of this economically critical, high-value cross-Channel traffic has been lost. An industry participant describes the pattern as "pure Brexit" with small exporters leaving, unable to afford to invest in systems and surviving business models changing from "just in time" to increased stock-holding. HMRC trade data analysed by LSE also pointed to 16,400 firms—14% of EU exporters—stopping exporting to the EU between 2019 and 2023 altogether, with falls in exporting concentrated among smaller firms.

Academic consensus indicates the UK economy is smaller now than it would have been based on the trajectory it was on in 2016. The numbers range from about 3% to 8%. "The fact that it is harder to trade with the EU is about half the hit, in line with previous forecasts," says Nick Bloom. He attributes the rest to the consequences of political uncertainty during the Brexit negotiations. "The other half is the uncertainty from the fact the Brexit process itself was such an enormous mess… We can never get that second 4% back."

The most recent study by the NBER, accounting for population growth, says the UK lost 6-8% of per capita output. This means an economy that would have otherwise grown about two-thirds of a percentage point faster every year over the past decade.

The world that post-Brexit Britain entered in 2020 has changed significantly. The prospects discussed in 2016 have shifted: the US has put up higher trade barriers and weaponised tariffs, the EU has not collapsed and has introduced protections for its manufacturers, and China is increasingly assertive. What's clear from the data is that many UK goods exporters, especially smaller ones, have not become used to Brexit and that in certain sectors it is not improving.

UK officials recently suggested establishing a single market for goods trade with the EU as part of the next phase of a Brexit reset, though the EU says this is incompatible with current government red lines around freedom of movement. Next month's UK-EU summit has been postponed, with discussions planned on rolling back many of the post-Brexit frictions on food and farm trade that have impacted cross-Channel flows. Put plainly, the status quo will not hold. Ten years on, Brexit and its impacts on the economy remain very much with us, and the policy debates may be about to return.