Brexit trade deal hit UK firms’ jobs and sales by disrupting European supply chains

The UK’s post-Brexit trade deal has damaged British firms by disrupting the flow of vital goods from Europe, according to new research from the University of Surrey, which found businesses exposed to EU supply chains suffered falling sales, shrinking workforces and lower wages. 

The working paper found that the UK-EU Trade and Cooperation Agreement (TCA), introduced in 2021, led to a sharp drop in imports of intermediate goods from the EU, including the parts, materials and components firms rely on to operate. Businesses most dependent on European suppliers were then more likely to cut jobs and experience declining sales. 

The findings challenge the idea that the TCA preserved frictionless trade because it avoided tariffs. While tariffs were not introduced, the agreement brought in new customs checks, paperwork and regulatory barriers that appear to have disrupted long-established supply chains across the UK economy. 

Researchers also found the effects were not evenly spread. Lower-skilled workers, younger employees and women were among the hardest hit, with firms exposed to EU supply chains reducing both hours worked and pay after the TCA came into force. 

The team analysed linked UK microdata covering firm-level goods and services trade, business performance and worker earnings. They examined how firms reliant on EU imports performed before and after both the 2016 Brexit referendum and the implementation of the TCA in 2021, comparing them against firms less exposed to European supply chains.  

Holger Breinlich, lead author of the study and Professor of Economics at the University of Surrey, said: 

"When politicians said Brexit would not create major barriers because there were no tariffs, many businesses quickly realised reality was very different. Supply chains depend on speed, certainty and low friction. Once you introduce delays, paperwork and compliance costs, firms suffer." 

The research found firms heavily exposed to EU goods imports experienced significant declines in employment and sales after Brexit, with the effects intensifying after the TCA was introduced. Companies importing both goods and services from Europe often struggled even more because replacing integrated suppliers proved difficult.  

Researchers say the findings matter far beyond Brexit because governments around the world are increasingly introducing trade barriers and protectionist policies. The study warns that disruptions to international supply chains can quickly filter through to workers, wages and regional economies. 

The research also highlights the growing importance of services within modern manufacturing and trade networks. Firms relying on combined goods-and-services supply chains were often less able to switch suppliers, leaving them more exposed when trade barriers increased. 

Professor Holger Breinlich added: 

"Modern economies are deeply interconnected. It is not simply about containers crossing borders anymore. Many firms rely on highly specialised combinations of goods and services that are difficult to replace quickly once trade becomes harder." 

ENDS 

• Interviews with Professor Holger Breinlich are available on request: mediarelations@surrey.ac.uk 
• Published in: Centre for Economic Performance Discussion Paper Series