The UK’s exit from the European Union (EU) in 2020 marked a structural shift in trade policy, resulting in a permanent increase in trade costs for businesses, according to a new report by the World Trade Organization.
In its latest Trade Policy Review on the UK, released on 28 October, the WTO says small and medium-sized enterprises (SMEs) have faced the most significant challenges since Brexit, primarily due to new border checks and requirements compared with EU membership.
“These added frictions have hit small businesses hardest,” the WTO says in the report.
“According to one study, exports from UK-based small firms to the EU fell 30% after the UK’s departure from the EU, with around 16,400 small firms ceasing EU exports altogether,” it adds.
The UK voted to leave the EU in a referendum on 23 June 2016 and formally left the single bloc on 31 January 2020.
A 2024 Cambridge Econometrics study, commissioned by London Mayor Sadiq Khan’s City Hall office, found that Brexit had cost the UK economy £140bn. By 2035, the research projected that £300bn could be wiped off the value of the economy if no action was taken to offset the impact of Brexit.
Despite the headwinds, the EU remains the UK’s largest trading partner, accounting for 48% of total goods exports and 53% of total goods imports in 2024. Other major trading partners include the US, China, Switzerland and India, the WTO says.
Since leaving the EU, the UK has entered into several new regional trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – a free-trade pact between 12 countries, including Australia, Japan, Malaysia, New Zealand, Canada and Singapore.
The Keir Starmer government also signed a trade agreement with the US shortly after President Donald Trump announced his “Liberation Day” tariffs. The deal includes reduced tariffs on UK car exports to the US and removes the levy on UK aluminium and steel exports. Most other goods are subject to a 10% blanket tariff.
However, UK trade has diverged sharply between goods and services, the report adds. Adjusted for inflation, services exports rose by 73% between 2010 and 2024, while goods exports were “practically flat”, the WTO notes, adding that the UK is the only Group of Seven economy exporting more services than goods by value.
The UK’s largest services export category – comprising research and development, professional and management accounting services and technical, trade-related and other business services – accounted for 36% of total services exports in 2024, according to the WTO report.
Financial services is the second-largest category, accounting for 20% of total services exports.
“These services are delivered predominantly through digital means and play a key role in driving the economy’s integration into global value chains,” the WTP says.
“Despite the strong performance of services trade, the contribution of goods and services trade to GDP has stagnated due to persistent underperformance in goods, with real goods exports in 2024 around 17% below their 2018 (pre-Covid) level,” it adds.