Many people raised concerns about the patchy coverage of services in the Brexit deal negotiated between the UK and EU, known as the Trade and Cooperation Agreement (TCA). The gaps have already caused some significant problems, especially for smaller firms.
In principle, the TCA offered extensive market access for UK services businesses, including the mutual recognition of professional qualifications. But in practice, the devil was in the detail or, in this case, several annexes of detail. These made a bewildering array of exceptions for different activities and even for different EU member states.
Like others, I have therefore been waiting nervously for hard numbers on the UK’s trade in services after the end of the transition period. Now we finally have some – and they are reassuring.
The official figures on trade in goods are normally available before those on services, partly because the flow of goods is easier to measure. This means we already knew that UK exports of goods to the EU slumped in January, and also that they have since rebounded to pre-Brexit levels.
Imports of goods from the EU have been slower to recover, probably due at least as much to Covid factors as to Brexit, but they have been trending higher too.
So, what do we now know about services? On Tuesday, the ONS published the first official figures for 2021. These only cover the first quarter of the year, do not adjust for seasonal factors, and are subject to even more uncertainty than usual. With these caveats, there are two key points to take away.
First, any Brexit-related hit to the UK’s trade in services appears to have been small. In contrast to the sharp fall in trade in goods between the fourth quarter of last year and the first quarter of 2021, trade in services held up relatively well. The continued impact of Covid restrictions, especially on international travel, has had a far larger impact.
Second, trade in services with the EU has fallen by more than trade in services with the rest of the world. This may partly be due to Brexit. But the difference lies almost entirely on the imports side, not UK exports to the EU.
This is probably because Covid restrictions mean that the UK has been spending less on imports of services related to travel and tourism. In contrast, UK exports of services, notably business and professional services, have been largely unaffected.
This suggests that the new post-Brexit barriers to trade with the EU have not been as onerous as many had feared. Some businesses are still being affected more than others, notably transport and logistics. But most have either been able to continue to operate as normal, or they have adapted quickly and found ways to work around the additional red tape.
Brexit is creating new opportunities, too. For example, the City of London initially lost its top spot in European equity trading to Amsterdam. However, the City’s competitive strengths are largely ‘Brexit-proof’ and it has since reclaimed pole position, thanks in part to regaining the ability to deal in Swiss stocks. Breaking free from EU regulations should bring more benefits in future.
In the meantime, many business surveys indicate that the Brexit hit has faded in the second quarter, and that it is expected to ease further.
To be clear, anything that increases barriers to trade between the UK and the EU is a loss to both sides, whether it reduces UK imports or exports. The fall in imports from the EU has also only been partly offset by an increase in trade with the rest of the world.
Nonetheless, like so much of ‘Project Fear’, the warnings that Brexit would wreck the UK’s international trade in services are turning out to be wildly exaggerated.
This piece was first published by the Daily Telegraph on 28th July 2021