Trade, productivity, and the UK economy: What the data tells us

In late 2025, the CITP, Frontier Economics, and the UKTPO published a comprehensive analysis of the UK’s trade policy landscape: UK Trade Policy: An Independent Review. In this series of blogs, we summarise each chapter. We encourage interested readers to look at the full report for more detail. Each chapter, listed below, can be read independently, with both an executive summary and key recommendations provided.

• Ch.1: UK trade and economic performance
• Ch.2: What do we know about UK trade policy
• Ch.3: Domestic dimensions of UK trade policy
• Ch.4: International dimensions of UK trade policy
• Ch.5: Trade and economic security
• Ch.6: Trade and the digital transformation
• Ch.7: Trade and sustainability
• Ch.8: Trade, employment and gender

This first blog provides a systematic, data-based depiction of the UK’s economic performance and trade patterns, where we outline the key trade and economic realities the UK currently faces.

More than 15 years of weak productivity and growth

Since the 2008 global financial crisis, the UK has struggled with what is often described as a “productivity puzzle” a situation that has endured through successive economic shocks, including the COVID-19 pandemic and Brexit.

Labour productivity, measured as gross value added per hour worked, is around 25% lower than in the US and roughly 10% lower than in Germany. More striking still is the lack of progress over time. Since 2015, UK productivity growth has lagged behind most comparator economies and has largely stagnated since 2020. Weak productivity growth constrains income growth, thus impacting living standards. Against this backdrop, boosting growth has become a central objective of UK economic and trade policy.

The UK as a highly open trading economy

Trade is fundamental to the UK economy. Exports and imports of goods and services together account for around 65% of GDP, which is broadly in line with the OECD average. This level of openness is higher than in large economies such as the US, though lower than the EU, where trade approaches 100% of GDP. While the UK’s openness has increased significantly over the past three decades, in comparison to the EU it has been broadly flat over the last ten years.

Trade is important for the UK, with more than 30% of UK jobs—around 6.5 million—directly associated with exporting firms.1 The majority of these jobs (c.5 million) are in services rather than manufacturing, underlining the UK’s distinctive reliance on services and on the importance of services exports, which have now overtaken goods exports in value.

Since 2015, overall employment growth—of nearly three-quarters of a million workers—has been driven almost entirely by non-exporting firms and those in services sectors. Manufacturing employment has declined, particularly among exporting firms, and this decline has disproportionately affected lower-skilled male workers.

The data also highlights important distributional dimensions. Exporting firms tend to employ more men than women, especially in manufacturing. Skill levels have shifted upward over time, with a modest move away from lower-skilled jobs in manufacturing and a larger change in services. These changes suggest that trade-related adjustment has uneven effects across workers, raising questions about how trade policy interacts with skills, gender, and regional inequality.

Who trades, and how?

Despite the importance of trade at the macroeconomic level, only a minority of UK firms are directly involved. In 2023, around 11.5% of firms exported and 12% imported, with just 6.5% doing both. Many more firms are likely to trade indirectly as suppliers of inputs, but data on this is not available. Most trading firms are small, but most small firms do not trade at all. By contrast, more than half of large firms engage in international trade.

Another distinctive feature of UK trade is who actually undertakes it. Just over 60% of exports and less than 40% of imports are carried out directly by firms classified as producers. The rest is undertaken by distributors or service-sector firms. These shares vary sharply by sector.

Trade patterns and structural shifts

Since Brexit, trade barriers with the EU—the UK’s largest trading partner—have risen significantly, contributing to declines in goods and services trade with the EU relative to pre-Brexit trajectories. Estimates from various analyses suggest that UK goods trade with the EU could be 30 per cent lower than it might have been without Brexit, and services exports in some sectors may have fallen by about 16 per cent due to higher trade barriers. More recent work, suggests that UK GDP may be 6-8% lower than it would have been in the absence of Brexit.2

Nevertheless, the EU remains the UK’s dominant trading partner. In 2023, the EU accounted for around 41% of UK exports and 52% of imports of goods and services. The US is the UK’s largest single-country partner, while China plays a significant role, particularly on the import side.

There are three features of the changes in UK trade worth highlighting.

• Digitalisation is increasingly impacting trade worldwide, and especially services trade. By 2024, around 70% of UK services exports were delivered digitally—the highest share among comparator countries. This is particularly evident in financial services and other business services, sectors that also tend to support higher-paid jobs.
• The UK is deeply integrated into global value chains. On average, around 16% of the value embedded in UK exports comes from foreign intermediate inputs, and the share in manufacturing is 28% in manufacturing. Nearly half of this foreign value added originates in the EU, underlining the depth of UK-EU production linkages.
• A related trend is the increasing interlinking of goods and services trade. UK firms are increasingly using more imported services as inputs into goods exports (“servicification”); and are increasingly bundling services with goods exports (“servitisation”).

Inward investment remains weak

Inward foreign direct investment into the UK, particularly in services, fell sharply in 2020 and has yet to recover to pre-pandemic levels. This contrasts with the EU and the US, where inward investment has rebounded more strongly. Outward investment by UK firms, by contrast, has risen significantly, again driven primarily by services, especially business and financial services. This divergence raises concerns about the UK’s attractiveness as an investment destination and its implications for future productivity growth.

Implications for policy

Drawing on a wide range of official data, we see that the UK economy is highly open, strongly services-oriented, deeply embedded in international value chains, but facing persistent challenges around productivity, investment, and growth—many of which have been intensified since leaving the EU.

Productivity and growth are central government priorities, and trade is an important driver. Hence, policies need to support firm participation in international markets, reduce unnecessary frictions, and also align with broader economic and non-economic goals, be this the distribution of economic activity across different parts of society, climate and environmental goals related to sustainability, or the need for economic security. This calls for an integrated and coherent approach to policy. Another aspect of this coherence is to recognise the close integration of services trade with goods trade and global value chains – key features of the UK economy.