Brexit triggers ‘significant decline’ in EU-UK trade

European Central Bank research also indicates that a significant number of UK firms have ceased trading with the EU due to increased bureaucracy

Brexit has caused a “significant decline” in EU-UK trade in both directions while aggravating existing labour shortages in the British economy, a new report by the European Central Bank (ECB) has concluded.

The research, which examined the impact of Brexit on UK trade and labour markets, also indicated that a significant number of UK firms had ceased trading with the EU altogether on the account of the increased bureaucracy and red tape.

It said the decline in UK trade with the EU ranged from 10 per cent to 25 per cent depending on the methodology.

The UK is due to introduce new import controls on goods coming in from the EU in September, a plan that has been deferred several times, and which threatens to impose additional barriers.

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“Across EU member states, Brexit has led to a significant decline in trade with the United Kingdom in almost all cases, although at varying magnitudes,” the ECB’s report stated.

The share of trade in GDP (gross domestic product) terms has also declined and a number of small and medium-sized UK companies have withdrawn from external trade with the EU, it added.

“At the product level it appears that there has been a substantial reduction in the number of products exported from the United Kingdom to the EU,” the ECB said. “The same is not found for exports of products from the EU to the United Kingdom. Overall this is broadly consistent with the increased customs requirements on the EU side having a greater impact on low-value trade flows, often stopping such flows completely,” it said.

The report also noted that the UK labour market has become increasingly tight since the post-pandemic reopening, which also coincided with a fall in the number of EU migrants working in the UK. “Labour market tightness, measured as vacancies per unemployed person, has shown limited signs of easing, while companies have continued to struggle with recruitment difficulties,” it said.

While many other advanced economies also experienced tight post-pandemic labour markets, the UK shortages have been more pronounced. The report noted there had been a consistent fall-off in EU migrants coming to the UK since the 2016 referendum.

“There is evidence that the end of free movement for EU citizens has also contributed to the recent surge in labour shortages, particularly in sectors with lower-skilled workers,” it said, noting that a recent survey suggested 15 per cent of UK companies cited lack of availability of EU workers as one of the reasons for their recruitment difficulties.

The recent stability Programme Update from Ireland’s Department of Finance, which sets out its financial projections for the year, contained a section on the performance of the State’s main export economies, including the UK.

“The most striking aspect is that at the end of last year the level of activity in the UK is not only 7 to 8 per cent below the level implied by the hypothetical no pandemic/no war scenario, it was also below its pre-pandemic level,” it said. “This is in sharp contrast to other regions such as the euro area and US, where activity has surpassed pre-pandemic levels and [is] almost back at levels implied by the pre-pandemic trend growth rate.”

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times