The authoritative source for independent research on UK-EU relations

08 Apr 2022


Services trade is critical for the UK economy. In 2021, the UK faced new barriers for service exports to the EU compared to the freedoms it enjoyed as a single market member. These barriers reduce trade, but in which services and by how much?

The pandemic affected world trade and in 2021 its effects persisted, but Brexit only principally affects UK-EU trade. We can therefore see the emerging impacts by comparing UK trade with the EU and other countries in 2021, and against a pre-Brexit benchmark year. Our benchmark is 2018, the last stable year before fears of ‘no deal’ in 2019 and Covid-19 disrupted UK trade patterns.

In 2018, service industries accounted for 80% of UK economic output, 47% of exports and 29% of imports. Services earned a trade surplus of £117 billion in 2018, including £23 billion with the EU.

By 2021, the surplus had grown to £119 billion as imports fell further than exports. Conversely, the goods deficit grew from £140 billion to £148 billion, widening the UK’s overall trade deficit from £23 billion to £28 billion.

services trade blog

Exports are valuable – they pay for the imports that we need and boost prosperity, productivity, and investment. Between 2018 and 2021, exports of goods and services both fell by 12%. Goods imports fell by 7% but service imports dropped by 20%. There’s a back-story, too: goods imports had fallen by 15% in 2020 and partially recovered in 2021, whereas service imports fell and remained depressed.

2018 overview

The EU27 was the UK’s most important service trade partner with 39% of exports and 50% of imports in 2018. Outside the EU, the United States was the UK’s largest services partner, with 25% of exports and 18% of imports. Switzerland was the next largest with 5% of service exports and 3% of imports. Finally, the rest of the world (‘RoW’) accounted for 32% of exports.

The main trade surpluses were in financial, professional and management consulting (‘professional’), and telecommunications, computer and information (‘telecoms’) services. Travel and transportation services produced the main trade deficits. (On this, note: when Britons travel abroad, their spend is treated as an import, and when people travel to the UK, their spend is treated as an export.)

The big four exports were: financial services (21%), technical and trade-related services (17%) (‘technical’), professional services (14%) and travel services (14%). The big four imports were travel (27%), technical (20%), transportation (12%), and professional (10%) services.

services trade blog

Emerging trends

Top-level service trade figures are available for 2021, but the breakdown by country and service type is currently only available for the first three quarters. The table summarises the changes in exports (at constant prices):

EU services trade suffered more than trade with RoW. Behind the 11% fall in total exports, EU exports (-19%) fell by more than RoW exports (-5%). For the same period, total imports fell by 22% but EU imports (-37%) also fell by more than RoW (-6%).

The biggest falls were in travel services. UK inbound travel (exports) fell by 63%, and outbound travel (imports) by 77%. The pandemic was the main cause, indicated by similar falls in EU and RoW.  Over the first three quarters of 2021, EU imports for travel and transportation relative to 2018, fell by £6 billion more than exports. This will temporarily improve the EU trade balance until travel activity recovers.

Some big categories of EU exports such as financial and professional services fell further than, or failed to grow as much as, RoW exports. However, telecoms EU exports grew faster than RoW – the digital provisions in the UK-EU trade agreement may be helping. Technical services EU exports also rose by 11%, while RoW fell (-18%), principally due to growth in exports to Germany and Ireland, and reduced exports to the US and Gulf.

UK exporters to the EU must now navigate complicated rules that vary by service type and member state. For example, new rules restrict labour mobility across the board while other changes impede UK champions such as financial services (loss of passporting rights) and professional services (derecognition of qualifications).

Fortunately, businesses have adapted rapidly to the pandemic by delivering more services remotely. In 2020, 82% of UK service exports were remotely supplied, compared to 65% in 2019, according to ONS. This change is likely to be permanent and may mitigate some of the restrictions on UK-EU labour mobility.

Measuring the gap

So, what would have happened in 2021 if UK-EU exports had kept up with UK-RoW, for example, if financial services exports had fallen by 4% instead of shrinking by 25%? The estimated potential impacts for the main service types compared to 2018 are shown below.

The export gap measures £17 billion and consists mainly of a £21 billion gap in financial, professional, and transport services (mainly air transport), offset by a £5 billion improvement in technical services.

There are two main problems that require urgent attention: financial services and professional services – their export gaps account for just under 60% of the UK trade deficit of £28 billion (transport exports should improve as Covid effects subside). There is also a great opportunity to assess what drives the better performing services and apply the lessons elsewhere.

However, the combined export gap for the ‘big two’ services is so large that it seems that the UK has little choice but to negotiate lower barriers for them with the EU.


By Richard Barfield, Managing Director of Richard Barfield Advisory Services and adviser to Hogan Lovells.


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