ECB | The impact of Brexit on UK trade and labour markets

1 Introduction

It has been almost two and a half years since the United Kingdom signed its post-Brexit trade deal with the European Union (EU), which was expected to have multifaceted impacts on the UK economy. The EU-UK Trade and Cooperation Agreement (TCA) was signed on 30 December 2020 and came into effect provisionally on 1 January 2021. Leaving the EU’s Single Market and the EU Customs Union represented a profound change in the economic relationship. This change was expected to have an impact on trade flows between the EU and the United Kingdom, but also on migration flows, foreign direct investment, regulation, the financial sector, science and education, and other areas of the UK economy.

While it will take some time for all the effects to emerge, this article focuses on recent developments in UK trade and labour markets, where the impacts of Brexit have been widely discussed. The coronavirus (COVID-19) pandemic is a confounding factor, but the available data allow a first stocktake of the effects of Brexit. While significant uncertainties regarding the precise magnitudes remain, the available evidence suggests that Brexit has been a drag on UK trade and has contributed to a fall in labour supply, both of which are likely to weigh on the United Kingdom’s long-run growth potential.^[1]

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Authors:

• Katrin Forster-van Aerssen
• Tajda Spital

Compliments of the European Central Bank.