The UK’s trade bill will rise sharply outside the EU

Outlook

The United Kingdom ran a trade deficit of 126.3 billion pounds (157.8 billion dollars and 6.9% of GDP) in 2015. The EU accounted for more than 70% and China 20%. The services surplus was 87.8 billion pounds (109 billion dollars 4.7% of GDP), with the United States accounting for nearly a third and the EU 23%.

A paper by Monique Ebell, ‘Assessing the impact of trade agreements on trade’, uses gravity modelling of 42 countries to estimate that the United Kingdom may lose as much as 35-44% of its goods trade with the single market after it departs, or 20-25% of its total trade.

In services, 60% of the UK’s single market services trade could be lost, or 24% of total trade. Financial services trade lost will be very difficult to replace.

Impacts

• The Norway model, staying in the single market, was the brightest option for post-Brexit trade but hard ‘Brexit’ is now looking most likely.
• Switzerland has an ‘a la carte’ approach -- free trade and movement within the EU but notably for the United Kingdom no services agreement.
• The European Free Trade Association would free up goods trade but not services or labour flows while product standards would have to be met.
• The most likely option is reversion to WTO rules. UK-EU trade would be subject to most favoured nation tariffs and other nontariff barriers.