Briefing Influence

  • The Brexit debate tends to be conducted in general, abstract terms. However, in this study, based on interviews with businesses, trade associations and additional research, Open Europe looks at what Brexit could mean for important individual export sectors of the UK economy, what incentives there would be to reach a trade deal and what barriers to trade could emerge.

9 March 2015

Background: How would Brexit impact the UK economy?

30%

UK exports of goods and services to the world (% of GDP)

In the first briefing in a research-series on Brexit, Open Europe explores the impact of an EU withdrawal on exports of UK goods and services. UK exports of goods and services to the EU account for about 14% of UK GPD, while the worldwide figure is 30% of GDP. Open Europe finds that if there were a Brexit, it would be much harder for the UK to secure a free trade deal with the EU in the services sector, than in the goods sector. Source: Open Europe

EU regulation now covers most parts of the UK economy, including the public sector, which is largely non-tradable, and other domestic firms which do not export. This means that Brexit – for better or worse – would have an impact across the entire UK economy. In this briefing, however, we focus on the impact of EU withdrawal on exports of UK goods and services, which account for 30% of UK GDP (the EU accounts for 44% of the UK’s total exports).

The sectors analysed by Open Europe account for 53% of the UK’s global exports and 47% of its exports to the EU. Mineral fuels (such as crude oil) and miscellaneous manufactured goods make up the majority of other UK exports to the EU not assessed in the briefing.

Outside of the EU, there are two major potential benefits for the UK:

  • The ability to pursue lighter and more tailored regulation not possible under EU membership
  • The ability to strike new trade deals with the rest of the world not possible in a club of 28 members

In a forthcoming report, we will comprehensively address the extent to which the UK could take advantage of these potential benefits.

Key findings: Initial impact of Brexit on UK exporting industries

  • All the exporting sectors assessed – cars; chemicals and pharmaceuticals; aerospace; capital goods and machinery; food, beverages and tobacco; financial services; insurance; and professional services – would experience initial disruption and uncertainty in the event of Brexit.
  • The 35% of the UK’s goods exports to the EU that could be subject to high tariffs (above 4%) upon exit – in sectors such as cars, chemicals and food – and the highly regulated financial services sector would be particularly vulnerable to initial disruption.
  • However, in a UK and EU exit negotiation there is a high likelihood that the UK and the EU could conclude preferential trade deals covering the five goods sectors assessed by Open Europe. In all these sectors UK firms would face new administration costs at the EU border, due to rules governing foreign content in their products. In the case of chemicals and food, a deal would potentially come with strict conditions such as adhering to the EU’s high regulatory costs or maintaining tariffs with the rest of the world to the cost of UK consumers – negating some of the potential benefits of Brexit.
  • For the remaining services sectors, and financial services in particular, guaranteeing seamless access to EU markets for UK businesses will be more difficult, not least because the UK has a deficit with the EU in goods, but a surplus in services.
  • All sectors would suffer from the UK’s loss of voting rights in the EU, but for industries such as the financial sector the impact could be greater since the barriers to entering European markets could be increased by new EU regulations over which the UK has no votes.

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To read the briefing – The impact of Brexit on the UK’s key export sectors – in full, click the PDF reader below, or click here.

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