Shania Bhalotia, Swati Dhingra and Danyal Arnold explain their study on the effect of Brexit on the UK’s ability to export services abroad. They argue that exporters now face higher trade costs, more red tape and fewer opportunities.

A central vision of Brexit was that Britain, unshackled from the rules, red tape, and regulations of Brussels, would forge new trade deals, reconnect with fast-growing markets, and re-charge its historical comparative advantage in sectors such as finance, law, life sciences, and education — the backbone of its modern, services-driven economy.

We have assessed what Brexit has meant for the UK’s ability to export services abroad. The short answer? Services exporters are now facing higher trade costs, more red tape, and fewer opportunities. The UK remains a services powerhouse but services exports have been underperforming due to Brexit barriers. The promised Global Britain pivot to non-EU markets has not materialised.

Services account for around 80% of UK GDP and over half of all UK exports. Tradable services have been key drivers of UK economic growth. Yet the impact of Brexit on services has received far less attention than the impact on goods. This is partly because services trade barriers are less tangible than goods trade – there are no queues at Dover when a services deal falls through.

Barriers to services trade don’t show up as taxes or duties or tariffs that are easy to quantify. They come from divergent national rules and regulations – differences that deep trade agreements often seek to overcome through provisions such as common rules or regulatory equivalence. To understand how Brexit has affected UK services, we need to measure these regulatory barriers.

We have built a novel dataset that captures the barriers from Brexit at a granular level — looking at country-service pairs to determine which UK services exports are affected and by how much. Barriers include restrictions such as Germany requiring lawyers to have European Economic Area or Swiss qualifications to provide certain legal services.

With a comprehensive set of Brexit barriers, we can track how export patterns changed before and after Brexit. Growth of UK’s worldwide services exports has slowed down and diverged substantially from growth of other exporters in the most affected services (top panel in Figure 1), while the least affected services have performed much more similarly to other exporters (bottom panel in Figure 1).

Figure 1: UK services export growth has slowed down much more in services with the highest Brexit barriers (top panel), Exports = 1 in 2015

Notes: Services are categorised by the level of Barriers imposed –Services with Brexit barriers of 75th percentile or above (top) and 25th percentile or below (bottom). Author’s calculations using BaTIS data. Trade values in US dollar and deflated using the World Bank GDP deflator for the US, and normalising exports to 1 in 2015 for the UK and the rest of the World.

One of the key political arguments for Brexit was that the UK could shift its focus globally and gain in world markets. Yet worldwide UK exports have underperformed by 4% to 5% in value – around £19.3bn to £24.1bn annually.

Next, we dig deeper by doing a like-for-like comparison – of UK exports in a particular service compared to exports of the same service by other countries at the same time. Growth in UK exports to the EU of services, with barriers (in red) or without barriers (in black), was highly similar to that of other countries’ exports or those of the UK to countries outside the EU, before 2020, just before the new trade rules came into effect (the black and red dots are around the zero difference horizontal line before Brexit). After the barriers from the new trading arrangement came into force in 2021, UK exports in services that got Brexit barriers slowed down much more sharply.

Figure 2: Event study for difference between UK services export growth and world services export growth in services with no Brexit barriers and services with Brexit barriers

Note: Estimation from Bhalotia, Dhingra and Arnold (2025) using BaTIS data.

Relative to bilateral exports that were not affected by the Brexit barriers, on average, Brexit barriers reduced UK exports of affected services to an EU country that imposes such barriers by 16 percent.

Brexit could also have knock-on effects on how the UK trades with the rest of the world. UK businesses might struggle more globally, or they might pivot and grow elsewhere. But we find these spillover effects to be very small. Whether we measured them directly or adjusted our methodology to remove UK exports to non-EU countries as the reference group for comparison, the story was broadly the same – the UK’s global services exports  are estimated to have dropped by about 4% to 5% since Brexit.

Another major finding is that barriers to cross-border investment matter at least as much as barriers to trade. Many services — especially in finance, life sciences, and professional services — are delivered through foreign affiliates, branches, or partnerships. Investment frictions, while directly affecting local presence, have had significant negative consequences for exports as well.

Beyond the UK, our study offers a broader lesson: deglobalisation has real economic costs, especially for advanced economies. The idea that regulatory sovereignty and global openness can go hand-in-hand is appealing — but often hard to achieve.

Far from unleashing the UK’s global services potential, Brexit has slowed it down. Undoing that knot will require not just new deals, but a new approach to international engagement — one that recognises that global competitiveness requires resolving complex regulatory frictions that can only be reduced through trust and cooperation among trade partners.

By Dr. Swati Dhingra, Associate Professor of Economics at LSE, Shania Bhalotia, PhD candidate in Economics at LSE and Danyal Arnold, a legal professional.