The cost of Brexit, January 2021

This report from UK think tank the Centre for European Reform looks at the end of transition.

New analysis by the Centre for European Reform finds that leaving the EU’s single market and customs union led total UK goods trade to fall by 22 per cent, relative to a modelled Britain that remained within the single market and customs union. This figure will improve in future months as businesses adapt to the new arrangements. But January’s trade losses are on top of our other estimate, which shows that Brexit had already led to a 10 per cent reduction in total UK goods trade between the referendum in 2016 and the end of the transition period, which finished on 31st December 2020. To estimate the effect of the UK leaving the single market and customs union in January, we use trade data from other advanced economies to create a ‘doppelgänger UK’. This method is similar to the one we previously used to estimate the cost of Brexit after the referendum (but which focused on GDP rather than trade, and adapted a model put together by Benjamin Born and colleagues). Simply put, the method works as follows. An algorithm chooses – from a ‘donor pool’ of 22 advanced economies – a selection of countries with economic characteristics that most closely matched those of the UK over the last decade. It does so by finding the countries that, when combined, create a doppelgänger UK with goods trade that has the smallest possible difference from the real UK data until December 2019, before the pandemic struck. By comparing the UK’s goods trade performance from January 2021 to that of the doppelgänger, we can assess how damaging leaving the single market has been to Britain’s trade, while also correcting for the effects of the pandemic. (A fuller explanation can be found in the appendix.)

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