Overall, UK trade in goods has weakened since Brexit – but it has strengthened for services. The data has been volatile, however, exacerbated by factors including the effects of the pandemic and the war in Ukraine, which have made measuring the impact of Brexit on UK trade difficult.

When the UK departed the EU in January 2021, it did so with the EU-UK Trade Cooperation Agreement (TCA) in hand, which provided for free trade in goods and limited mutual market access in services.

However, the EU and the UK implemented the TCA at different speeds. EU countries applied full customs requirements and checks on UK exports at the start of 2021, whereas the UK delayed the introduction of full customs requirements on EU imports until January 2022 (and some are still to be fully applied). All this means the data we now have from 2023 (the third year since Brexit was finalised) provides our first clear picture of what UK trade looks like in the aftermath of Brexit.

One important measure in this respect is trade intensity for exports and imports – defined as the volume of exports and imports divided by Gross Domestic Product (GDP). We can see in the chart below that the trade intensity of goods has fallen over the past couple of years, whereas it has increased for services. 

UK trade intensity (% of GDP)

What might help explain this divergence? Post-Brexit trade barriers have created more friction for goods than services and reduced the UK’s dependence on EU demand for services relative to goods. At the same time, increased digitalisation has made trade in certain services easier and less constrained by geographical distance.

In a world characterised by growing geopolitical tensions and rising protectionism, it’s vital that the UK forges strong new trade partnerships.

One of the most commonly cited advantages of Brexit was that the UK would regain the ability to conduct an independent trade policy, free to strike new trade deals independent of the EU. But how has it fared?

Since Brexit, the UK has enjoyed some success in making new trade deals. Aside from rolling over existing trade agreements, new deals with Australia and New Zealand were inked (although these two countries combined account for under 2% of the UK’s goods trade, as we can see below), while the UK has agreed to become a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement between 11 countries around the Pacific Rim.

Share of UK trade (%) 

The new UK government’s trade strategy remains to be seen, particularly in relation to the EU – which is of course still a key trade partner for the UK. Labour has ruled out rejoining the EU although has sent out some positive signals about its planned relationship with Europe in various speeches and its election manifesto. These include the desire to secure a so-called sanitary and phytosanitary agreement to make trade in agricultural and food products smoother, ensuring mutual recognition of professionals, and promoting short-term visas for touring artists.

The government is expected to publish a new trade strategy in due course, as outlined in its manifesto, and to negotiate standalone sector deals, such as for digital activities, or mutual recognition agreements to provide a further boost to service exports.

Recently, the UK joined the first global digital trade agreement negotiated at the World Trade Organization along with 90 other countries. The agreement, once implemented, would essentially ban customs duties on digital content and the digitalisation of customs documents and processes.

The new government has also announced its intention to initiate trade talks, starting with the Gulf Cooperation Council, India, Israel, South Korea, Switzerland and Turkey. Talks with India did take place under the previous Conservative government, but they had reached an impasse.

Combined, the US and China accounted for around a fifth of UK trade in 2023. However, the US’ economic policies are characterised by self-sufficiency coupled with national security, enforced through increased protectionism and industrial policies linked to green initiatives. This means a free trade agreement with the US looks highly improbable.

A trade agreement between the UK and China also looks unlikely given the increasing trend around the world of reshoring, friendshoring, and moving supply chains away from countries that may be deemed potential national security risks.

World trade volumes inched up by 0.1% in May after rising by 1.1% in April, according to the latest CPB Netherlands World Trade Monitor. The less volatile three-month-three-month measure suggests that global trade momentum is slightly positive, up by 0.5% in February-May from the previous three months. The latest UN Trade and Development forecast is for trade to have increased by 0.5% quarter-on-quarter in Q2 after falling by 0.1% in Q1.

Global trade monthly growth (%)

There were mixed trade trends in May. Goods and services going to emerging Asia were up by 4.5% over the month, and by 1.2% from Eastern Asia. By contrast, imports to the UK (-5.2%), Latin America (-3.3%), the euro area (-1.9%), advanced Asia (-1.5%) and China (-1.1%) were all down.

There were significant increases in exports from emerging Asia ex-China (+7.3%), China (+5.3%) and Eastern Europe (+4.1%), but exports from advanced economies saw broad-based falls, with those from the UK (-2.8%), the euro area (-2.7%), Japan (-1.5%) and the US (-1.1%) all down.

With geopolitical risk ratcheting up in the Middle East and elsewhere, we expect global trade to remain fairly volatile in the months to come.

If you’re keen to learn more about how developments around the world affect supply chains and might impact your business, contact your NatWest representative, or get in touch with us here.