Brexit 'more costly for UK than EU'

9 January 2017

British firms’ supply chains will suffer more from Brexit than those of European companies, an analysis has found.

A study by think tank Bruegel found that where the British economy was highly dependent on EU supply chains and would be severely hit by tariff increases, the reverse was not true.

“A hard Brexit leading to a disruption of the European supply chain would be more costly for the UK than other EU countries, at least as far as the production chain is concerned,” said Bruegel.

This is because the UK obtains a very high proportion of value added content from the European supply chain – whereas Europe obtains relatively little from Britain’s supply chain, it said. 

The UK’s automobile and transport sector is likely to be among the hardest hit by Brexit, whereas a sector like pharmaceuticals is likely to survive the effects of the transition relatively well.

Bruegel asked whether the UK’s export success in sectors like automobiles and pharmaceutical products might be at risk once the UK leaves the EU, due to the effect on supply chains.

The think tank’s analysis found that if the current zero tariff rate for all trade in services and goods is no longer maintained and the mobility of labour and capital is reduced, UK participation in European supply chains would be hampered.

“We find that the UK’s automobile sector and related services, especially transport and storage, could be severely affected,” said Bruegel.

“However, another important sector – pharmaceuticals – should suffer less, because the expected increase in tariffs outside a trade agreement with the EU would be negligible.”

Research and development might also be badly affected by a hard Brexit, which could force company headquarters out of the UK.

Bruegel used OECD trade figures to measure the value of supply chain activities to compare the impacts of Brexit on the UK and the EU.

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