11 January 2018
Two of the biggest Brexit-voting regions would be hit hardest by a potential fall in services exports upon leaving the EU, new analysis suggests.
While London is by far the biggest exporter of services, our latest Briefing Paper, Brexit and Regional Services Exports: A Heat Map Approach shows that the North East and West Midlands are the most reliant on the European market, sending around half of their services exports to the EU.
The new ‘heat map’ by Dr Ingo Borchert and Nicolo Tamberi is the first to describe the rich pattern of UK regional services exports – and how reliant different regions and sectors are on the EU.
As well as regional differences, there are significant variations by sector. Services exports from the motor trade sector are primarily oriented towards the EU, for example, whereas professional services are exported mostly to non-EU destinations.
The research also provides the closest estimate yet of the value of Britain’s ‘hidden’ services exports – around £50 billion a year is generated by services inputs into manufacturing goods, which are subsequently destined for export.
The discussion around Brexit’s potential impact tends to focus on goods trade, even though international trade in services is more important for the UK economy than for most other countries, the researchers say.
Dr Ingo Borchert, Senior Lecturer in Economics at the University of Sussex and Fellow of UKTPO, said:
“While London is by far the biggest exporter of services to the EU, it also trades on a huge scale with the rest of the world, so is somewhat protected.
“Other regions are far more vulnerable. The North East and the West Midlands send nearly half of their services exports to the EU and thus their service sectors emerge as the most exposed to potential Brexit-related changes in market access conditions.
“This is vital and timely analysis for our Brexit negotiators as they prepare for the most crucial talks our country has faced in decades.”
Nicolo Tamberi, Researcher at the UKTPO, said:
“It is increasingly difficult to treat goods trade and services trade independently. More than half of the indirect services exports embodied in manufacturing exports from Wales, Yorkshire or the North East export go to the EU, thereby potentially rendering services exports contingent on goods market access.”
These are the report’s key findings:
Exiting the Single Market will have starker ramifications for more regulation-intensive services such as financial, legal or broadcasting services. This Briefing Paper shows which geographic areas specialise in what kinds of services exports for which destination markets. This information will be helpful in thinking about negotiating priorities and levels of ambition in the realm of services trade for the forthcoming UK-EU negotiations.
Further information on this Briefing Paper (14), Brexit and Regional Services Exports: A Heat Map Approach is available in the Online Appendix
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.