Services sector is the most important economic asset, accounting for 80 per cent of total UK output

The services sector is our most important economic asset, accounting for 80% of total UK output.  However, the latest research by London School of Economics (LSE) shows that services exports have declined by around 16% in the EU markets most affected by Brexit-related trade barriers.  This supports the evidence BCC hears directly from UK businesses.

Before  the introduction of the Trade and Cooperation Agreement (TCA) in 2021, many of the UK’s professional services firms – particularly in legal, financial, and consultancy – had built strong cross-border relationships with clients across the EU.

Services accounted for over 40% of total UK exports to the EU, highlighting the sector’s high level of integration with European markets.

However, with the introduction of the TCA, new requirements, such as licensing, residency rules, and the lack of mutual recognition of professional qualifications – have created a significant challenge for UK service exporters. BCC data confirms the impact: nearly half of businesses exporting services cite red tape and market access issues as key barriers post-Brexit. Many report losing European clients due to regulatory complexity and lack of mutual recognition.

This is particularly concerning given the UK’s longstanding strength in services, which account for around 80% of GDP and more than half of total exports.

Despite TCA barriers, around 70% of UK services exports to the EU are delivered remotely under the World Trade Organisation (WTO)’s Mode 1 classification, meaning legal opinions, accountancy work, architectural designs, and other business services can still be traded electronically without restrictions.

For the remaining 30%, the TCA has set restrictive limits on what service delivery companies can do during short-stay visits. This makes it difficult for UK firms to market and promote their services in person, even where the actual delivery could be electronic.

Evidence from LSE Study

A recent discussion paper from the Centre for Economic Performance at LSE entitled ‘Deglobalisation in disguise? Brexit barriers and trade in services’, provides an analysis of how the TCA has reshaped services trade. The authors  identified and categorised specific regulatory frictions, such as licensing, residency, and qualification recognition, across  713 service categories and 27 EU countries. This mapping was then matched to detailed trade data to assess the impact of each barrier on UK-EU services flows.

The paper’s key findings highlight that:

• UK services exports to the EU in sectors affected by these barriers have declined by 15.8% relative to other bilateral flows.

• Overall, UK services exports are estimated to be 4-5% lower than they would have been without Brexit.

• These losses have not been offset by increased trade with non-EU markets, challenging the vision of a UK pivot successfully toward global markets beyond Europe.

The report highlights that the most significant barriers are regulatory frictions such as residency requirements, licensing restrictions, and the lack of mutual recognition of professional qualifications. These obstacles disproportionately affect high-value sectors, such as legal, financial, and tech services, where the UK has traditionally held a comparative advantage.

What UK Businesses are saying?

BCC data has consistently highlighted these issues, and survey of over 1,000 businesses carried out between July and August last year, finds that SME exporters in particular are disproportionately impacted:

• Customs procedures are the top perceived barrier, cited by 45% of businesses, followed by export documentation cited by 39% of firms. A firm in Manchester told the BCC they were losing several EU clients due to new licensing requirements that prevent them from offering cross-border services.
• Many firms are calling for simplified trade regulations and improved EU market access, and others are advocating for rejoining the Single Market or enhancing the TCA. A firm in Bristol highlighted delays and increased costs in hiring EU-based talent, citing visa complexities and lack of mutual recognition of qualifications.
• Nearly half of businesses (46%) urge the UK Government to prioritise the easier movement of personnel between the UK and the EU in any negotiations with the EU.

What’s Next for UK Services Trade?

As we look ahead, one of the key questions is:  How can the UK regain momentum in global services trade in a post-Brexit environment? The evidence suggests that regulatory alignment and deeper economic integration are essential for unlocking growth in services. While new trade deals may offer long-term potential, they are unlikely to offset the loss of frictionless access to the EU’s Single Market.

The Government’s Trade Strategy, launched at the BCC’s Global Annual Conference in June, could support this work, but only if it ensures fast delivery and is followed by clear and practical actions. A key priority is securing the continuation of the WTO’s moratorium on customs duties for electronic transmissions – losing this waiver could introduce tariffs on digital trade, directly impacting the 70% of UK-EU services exports delivered electronically.

To support SMEs, the UK needs targeted, real-time evidence on how trade barriers affect daily operations, investment, and growth. This will show whether policy is delivering real benefits or adding complexity. The BCC has also called for liberalised short-stay visit rules for marketing and promotion, greater mutual recognition of professional qualifications, and closer UK-EU regulatory cooperation. Improvements to rules on secondments, intra-company transfers, and youth mobility schemes for work and training would also strengthen services trade on both sides of the Channel.

The latest LSE paper is a timely and evidence-based contribution to this debate. It highlights where frictions are emerging and why a more strategic, evidence-led approach is needed if the UK is to rebuild its position as a competitive global services hub.