IMF: The Uneven Path Ahead: The Effect of Brexit on Different Sectors in the UK Economy

04 December 2018

IMF research suggests that all likely Brexit outcomes will entail an economic cost for the UK, and these costs would be unevenly spread across different sectors and regions.

The UK’s membership in the EU means that the country enjoys a frictionless trade arrangement embodied in the EU single market and customs union. After exit, barriers to trade in goods and services would increase while labor mobility would fall.

This matters because the EU is the UK’s largest trading partner, accounting for nearly half of the UK’s trade in goods and services. For example, 56 percent of cars produced in the UK are exported to the EU and about ¼ of UK-produced financial services are related to EU clients.

A frictionless border has enabled UK firms to specialize in activities in which they have comparative advantage and the greatest value added. EU membership had also stimulated foreign direct investment as firms invested in the UK as a base to access the single market, while free labor mobility enabled the UK to hire talent from across the EU.

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© International Monetary Fund