The European Central Bank published an Occasional Paper, prepared within the European System of Central Banks’ EU-UK Network, analysing how Brexit has affected EU-UK trade and foreign direct investment (FDI). The paper’s core finding is that non-tariff barriers introduced after the transition period materially reduced UK goods exports to the EU, while bilateral FDI links weakened more modestly and appear to be influenced by relocation-related flows, with adjustment pressures most visible in financial services. On trade, the paper reports that UK exports to the EU contracted by almost 40% after the transition period, with difference-in-differences estimates implying UK exports to the EU were about 32% lower over January 2021 to April 2024, while average effects on UK imports from the EU are not statistically significant. This asymmetry is consistent with the EU introducing customs controls from 1 January 2021 while the UK repeatedly delayed its own controls until 31 October 2024. Synthetic-control results suggest UK total imports were around 15% below a no-Brexit counterfactual, and increased sourcing from smaller non-EU economies was not sufficient to offset reduced imports from most EU Member States and several other advanced economies. Product-level and sectoral analysis points to weaker European exports to the UK in goods sensitive to higher trade costs, including food (around 15% to 20% below 2018 levels in real terms for Germany, France and Spain) and global value chain-related products (around 20% to 30% lower for Germany, France and Italy). Services trade rebounded strongly post-pandemic but has grown faster with non-EU partners, with 2023 services exports of GBP 171 billion to the EU versus GBP 299 billion to non-EU countries, alongside continued heterogeneity in financial services trade following the loss of passporting rights. On FDI, gravity-type estimates attribute about a 4% decline in EU FDI flows into the UK and UK FDI flows into the EU to Brexit, while results are sensitive to very large transactions and can flip positive when such flows are excluded, consistent with temporary relocation effects.
European Central Bank 2025-11-13
European Central Bank research estimates UK exports to the EU fell almost 40% after the Brexit transition and EU-UK FDI flows declined about 4%
The European Central Bank's Occasional Paper, prepared within the European System of Central Banks’ EU-UK Network, examines Brexit's impact on EU-UK trade and foreign direct investment (FDI). It finds that non-tariff barriers significantly reduced UK goods exports to the EU, while bilateral FDI links weakened modestly, influenced by relocation-related flows. The paper highlights a nearly 40% contraction in UK exports to the EU post-transition, with services trade growing faster with non-EU partners and a 4% decline in bilateral FDI flows due to Brexit.