The Economic Impact of Brexit on the UK

Nearly a decade after the Brexit referendum, the overall picture has become much clearer. The worst-case economic scenarios that many feared in the immediate aftermath did not come to pass. However, the longer-term economic impact of Brexit has gradually come into focus. Years of political deadlock, followed by the introduction of stricter trade barriers in 2020, have taken a visible toll on trade, investment, and living standards in the UK.

In the referendum held on 23 June 2016, the United Kingdom voted to leave the European Union by a narrow margin of 51.9% to 48.1%. While opinion polls suggested a close race, betting markets had largely anticipated a Remain victory, leaving financial markets unprepared for the result. In the hours following the vote, sterling fell sharply from around $1.50 to $1.33. This sudden drop reflected immediate concerns about the economic consequences of Brexit. Concerns that later translated into real and lasting effects on trade, foreign direct investment, and the broader UK economy.

Rising Trade Risks and Barriers and the Economic Impact of Brexit

Brexit significantly increased trade risks for UK businesses. Under the new arrangements, the UK cannot offer more favourable trade terms unilaterally, and more than half (54%) of exporters report that the UK–EU trade deal is not helping them grow sales. A survey by the British Chambers of Commerce (BCC) Insights Unit of 989 businesses (96% SMEs) shows that EU trade is becoming increasingly difficult, largely due to regulatory complexity and compliance costs.

The introduction of a new regulatory and customs border has made trade with the EU more expensive and more complex. Confusion about the new rules has led to widespread non-compliance. This has reinforced the negative economic impact of Brexit, especially on smaller firms.

Analysis by the UK Trade Policy Observatory indicates that during the first three months of 2021, UK exports to the EU fell by 15%, while imports declined by 32%. The Centre for European Reform similarly estimated that leaving the single market and customs union reduced UK goods trade by £10 billion, or 13.5%, by May 2021

Trade and Cooperation Agreement and Long-Run Productivity Effects

Since Brexit, the UK’s trading relationship with the EU has been governed by the Trade and Cooperation Agreement (TCA), which entered into force on January 1, 2021. While the agreement avoided the most disruptive outcomes, official estimates suggest it has come at a cost. Compared with continued EU membership, the TCA is expected to reduce the UK’s long-term productivity by around 4%.

This reflects the introduction of new non-tariff barriers—such as regulatory checks and administrative requirements—that make cross-border trade more cumbersome. Over time, these frictions limit firms’ ability to specialise and fully exploit comparative advantage, amplifying the economic impact of Brexit.

As a result, both exports and imports are projected to be around 15% lower in the long run than they would have been if the UK had remained in the EU.

Before Brexit, exports of goods and services to the EU were worth £358 billion, accounting for 41% of the UK’s global exports, while imports from the EU totalled £454 billion, or 51% of all UK imports. These projections are based on averages from multiple independent studies and reflect the Office for Budget Responsibility’s assessments of how Brexit has affected UK–EU trade flows.

Foreign Direct Investment, Finance, and Structural Shifts

Following Brexit, total UK outward foreign direct investment into the EU fell by around one quarter. Some inflows may have been replaced through other jurisdictions, but this remains unclear. Unrestricted access to the EU Single Market had long encouraged inward investment. Reduced access has therefore made the UK a less attractive destination and reinforced the broader economic impact of Brexit.

Empirical studies consistently show that FDI supports productivity growth. Since Brexit, approximately 10% of the UK banking sector’s assets and around 40,000 financial-sector jobs have relocated to Paris, Frankfurt, Dublin, Luxembourg, and Amsterdam. At the same time, trade costs within the European Union have continued to fall. It’s about 40% faster than trade costs among other OECD countries, further widening the competitiveness gap.

Investment Decline and Productivity Losses

At the time of writing, the UK is moving toward one of the most economically damaging versions of a hard Brexit. This path is largely driven by the desire to impose stricter border controls on EU citizens. Such an approach remains difficult to reconcile with Single Market participation. Despite contrary evidence, populist narratives continue to argue that EU immigration has harmed domestic workers. Similar views appear in the United States and other advanced economies. These dynamics form an important political backdrop to the ongoing economic impact of Brexit.

Using nearly a decade of data and evidence from the Decision Maker Panel (DMP), researchers estimate that by early 2025, UK GDP was 6–8% below its pre-Brexit trajectory. Investment declined sharply after 2016 compared with similar economies. This divergence persisted in the following years.

A key driver was uncertainty

 Brexit generated what researchers describe as a “large, broad and long-lasting” rise in uncertainty. More than half of UK firms, at various points, ranked Brexit among their top three concerns. Persistent uncertainty discourages capital spending. This includes investment in machinery, digital systems, and research and development.

The study also finds that employment and productivity were each 3–4% lower than they would have been without Brexit. Productivity losses stemmed from weaker innovation and the diversion of managerial time toward compliance and contingency planning. During preparations for new trading arrangements, senior executives reported spending several hours per week on Brexit-related planning.

This time use is strongly correlated with weaker productivity growth. Although EU trade volumes declined mainly after 2021. Researchers stress that much of the damage occurred earlier through prolonged adjustment costs. This makes the economic impact of Brexit a rare example of large-scale “reverse trade reform” among advanced economies.