The UK formally left the European Union single market as of January 1, 2021. The UK-EU Trade and Cooperation Agreement (TCA) signed in December of 2020 allows for trade in qualifying goods between the UK and the EU without tariffs or quotas. U.S. exports shipped directly to the UK face essentially the same customs and border requirements as when the UK was an EU member State. However, U.S. goods entering the UK from the EU, and goods passing through the UK to the EU, posed a problem immediately post-Brexit due to the Northern Ireland Protocol. Tensions and uncertainty around the Protocol played a role in dampening U.S. investment confidence in the UK, however in February 2023 the UK and EU reached an agreement, known as the Windsor Framework, to address the challenges. The combined impact of COVID and Brexit on the economy resulted in a nearly 10 percent decline in the UK’s GDP in 2020, the largest drop among G7 countries. The UK’s emergency and fiscal support protected jobs and incomes during the pandemic and, combined with a rapid vaccine rollout, allowed the UK to recover quickly, with a GDP that eventually reached pre-pandemic levels. However, the recovery has slowed as the economy continues to struggle with Brexit-related adjustments and supply shortages and rising inflation, compounded by Russia’s invasion of Ukraine. The United Kingdom also struggles to recover from the effects of the October 2022 Prime Minister Truss ‘mini budget’ which triggered a domestic financial crisis in reaction to a proposed plan of unfunded budget cuts. High inflation (annualized rate of 8.6% as of June 2023) is making London, already one of the world’s most expensive cities, an even more costly place in which to do business. Property, restaurant, and transportation costs are rising and expensive relative to many other European cities.
As UK and third-country suppliers represent strong competition, and with the UK’s desire to increase domestic content across supply chains in the post-Brexit regulatory environment, U.S. exporters are advised to offer differentiated products at competitive prices.