How Is Brexit Affecting the UK Economy Overall?

18th January 2026

Brexit has had a measurable negative effect on long‑term economic performance, though it's not the only factor shaping the UK economy.

Independent forecasters such as the Office for Budget Responsibility (OBR) estimate that, in the long term, Brexit will reduce UK trade volumes and national income compared with continued EU membership.

In particular, trade has faced increased friction due to border checks, customs paperwork and regulatory divergence.

Studies by academic and policy institutions suggest this has contributed to slower productivity and weaker investment growth over time — with one major UK study indicating Brexit may reduce productivity and growth by around 4 % relative to a "remain" scenario.

However, there is debate in parts of the policy community about the magnitude of the impact, with some think‑tanks arguing that trade patterns overall have remained resilient.

What Impact Has Brexit Had on UK Trade With the EU and the Rest of the World?

Trade With the EU

Brexit ended the UK's membership of the EU single market and customs union, meaning free goods and services flow was replaced by the Trade and Cooperation Agreement (TCA), which avoids tariffs but introduces new non‑tariff barriers (customs checks, regulatory compliance, sanitary/safety requirements).

These changes have contributed to:

A fall in UK goods exports to the EU in real terms compared with pre‑2020 levels.

Higher costs and delays for businesses trading with the EU.

Some services exports to the EU being constrained by the loss of single market privileges and regulatory harmonisation.

The EU remains the UK's largest trading partner in goods and services, but overall trade has not grown as quickly as might have occurred without Brexit, according to independent forecasters.

Trade With the Rest of the World

A key political argument for Brexit was the freedom to strike new free trade agreements (FTAs) with non‑EU countries. The UK has negotiated FTAs with several countries (e.g., India-UK Comprehensive Economic and Trade Agreement signed in 2025, targeting significant bilateral trade growth).

However:

These deals often take many years to generate substantial trade flows.

The economic value of new FTAs is generally smaller than the EU market because the EU historically accounted for a very large share of UK trade.

So while there are some emerging gains in non‑EU markets, these have so far not wholly offset the increased friction with the EU.

How Have New Trade Deals Affected UK Exports and Imorts?[b]

The impact of post‑Brexit trade deals on exports and imports is mixed and still evolving:

Positive effects

Trade pacts, such as the recent India-UK agreement, create frameworks for deeper commercial ties and promise to lift bilateral trade significantly over time, potentially totalling tens of billions of pounds by 2030.

Limits and context

Many of the UK's new trade agreements replicate existing EU deals (through "roll‑overs") and have lower economic value than full single market participation.

FTAs can reduce tariffs but cannot remove non‑tariff regulatory barriers — an ongoing issue in many markets.

Overall, new trade deals are not currently large enough to fully compensate for the loss of frictionless trade with the EU, especially for goods sectors with integrated supply chains.

[b]Are There Significant Barriers or Regulatory Issues Causing Problems for Businesses?

Yes — the most persistent challenges come from regulatory divergence and paperwork, which did not exist when the UK was in the EU single market. These include:

Goods trade

Customs paperwork, rules of origin requirements and sanitary/phytosanitary inspections have increased costs for exporters and importers.

Services trade

Services — especially financial, professional and digital services — have lost automatic access to EU markets and now face complex regulatory compliance in each country.

"Non‑tariff barriers"

These are often more costly than tariffs because they affect compliance costs, delivery times and operational complexity — particularly for small and medium‑sized enterprises.

Business surveys continue to show that many firms face higher costs and time delays for cross‑border trade with the EU due to these issues.

How Has Brexit Affected Labour Mobility, Especially in Key Sectors?

Brexit ended free movement of people between the UK and EU. This has had significant labour market effects:

Reduced EU labour supply

Immigration from the EU has levelled off post‑Brexit, whereas before it was rising rapidly.

Sector‑specific impacts

Agriculture and seasonal work: Many farms and food businesses that relied on EU seasonal workers have faced shortages and increased labour costs.

Healthcare and social care: Employers report challenges recruiting EU nurses and care workers, amid broader shortages.

Hospitality and construction: These sectors also face recruitment challenges for lower‑wage roles that historically attracted EU workers.

Overall, labour shortages have emerged as a recurrent constraint on certain parts of the economy, pushing some firms to recruit non‑EU workers or pay higher wages.

What Is the Impact on the UK's Financial Services Sector?[b]

The UK’s financial services sector — particularly in London — was one of the biggest beneficiaries of EU membership due to "passporting" rights, which allowed firms to sell services freely across the EU without separate licences.

Brexit ended passporting, and since then:

UK financial services have lost some market share in the EU, with firms establishing subsidiaries within the EU to maintain market access.

UK exports of financial services to the EU have declined, and the UK has invested more abroad as firms restructure operations rather than exporting services directly.

London’s strategic position as an EU‑linked financial hub has weakened relative to cities like Dublin and Amsterdam for certain activities.

At the same time, UK regulators and industry leaders have emphasised the benefit of regulatory autonomy, arguing it allows the UK to innovate faster than the EU.

Despite these shifts, financial services remain a major UK export. But Brexit has clearly altered its access, requiring new business strategies rather than outright market exclusion.

Overall Assessment

Economists generally agree that Brexit has had a negative net effect on UK economic growth, investment and trade performance compared with remaining in the EU. The magnitude is debated, with some studies suggesting moderate impacts and others pointing to larger long‑term GDP and trade effects.

Key themes include:

Trade with the EU is more costly and slower than before.

New free trade agreements have potential but take time to deliver real economic gains.

Labour supply constraints affect multiple sectors.

Financial services have lost some preferential access but adapt by establishing EU bases.

Brexit’s effects continue to evolve as new deals, policy adjustments and economic conditions play out — but the legacy of increased trade friction and labour mobility changes is firmly established.

[b]Further Reading On The UK Economy

The UK Housing Market and the Economy - A Delicate Balance

The State of the UK Labour Market in 2025 Trends Challenges and the Road Ahead

Inflation in the UK Where We Stand Now and What Comes Next

What are the key risks to the UK economy in the short and long term

Current state of UK economic growth