Should we stay or should we go? Firms’ decisions on how to supply services after Brexit

This research used data made available via the Office for National Statistics (ONS) Secure Research Service, which is being expanded and improved with ADR UK funding.

Author: Martina Magli, Ludwig Maximilians Universität München and Holger Breinlich, University of Surrey

Date: April 2026

Research summary

This study explored how UK firms supply services to overseas markets and how this changed after the 2016 Brexit referendum. The research found that firms increasingly shifted from exporting services directly from the UK to supplying them through their EU‑based affiliates. This helped firms maintain access to EU markets but reduced domestic employment and sales. The research has the potential to inform UK trade policy. It has been cited in reports published by the UK Office of Budget Responsibility and the UN Conference on Trade and Development.

The project was supported by academic partners in Germany and the UK, with access to linked ONS datasets enabling detailed analysis of firm‑level behaviour across a decade.

Data used

The analysis combined three major administrative datasets accessed via the ONS Secure Research Service:

• Inquiry on Trade in Services (ITIS), which records detailed firm‑level services exports and imports.
  Office for National Statistics, released 19 March 2025, ONS SRS Metadata Catalogue, dataset, Annual International Trade in Services - UK, https://doi.org/10.57906/d42y-c117
• Annual Foreign Direct Investment Survey (AFDI), which includes information on UK firms’ foreign affiliates, their location and profits.
  Office for National Statistics, released 29 March 2021, ONS SRS Metadata Catalogue, dataset, Annual Foreign Direct Investment Survey - UK,https://doi.org/10.57906/thyx-0944
• Annual Business Survey (ABS), which provides firm characteristics including employment, turnover, value added and ownership structure.
   Office for National Statistics, released 19 March 2024, ONS SRS Metadata Catalogue, dataset, Annual Business Survey - GB, https://doi.org/10.57906/ks2s-qx24

These datasets covered the period 2009–2019 and made it possible to trace how UK firms supplied services through different “Modes of Supply”, such as cross‑border trade (Mode 1) or local affiliate sales abroad (Mode 3). Information on country characteristics was supplemented with the Organisation for Economic Co-operation and Development (OECD)’s Services Trade Restrictiveness Index, and Bank of England survey data on business uncertainty.

Methods used

The study constructed a new firm‑level dataset linking UK firms’ service exports, affiliate activity, and key business characteristics. This allowed researchers to observe, for the first time, how firms combine or switch between different ways of supplying services internationally.

To assess the impact of Brexit, the team used a difference‑in‑differences approach. They compared firms’ service exports to EU countries with their exports to non‑EU countries before and after the 2016 referendum. The analysis examined both the likelihood of switching supply mode and the effects of mode switching on trade flows, employment and sales in the UK.

The research also used event studies and extensive robustness checks to confirm there were no underlying pre‑trends driving results, and that changes reflected firms’ responses to expected trade barriers rather than other economic shocks.

Research findings

Before Brexit, UK firms used a mix of ways to supply services overseas. Some relied on cross‑border trade, such as digitally delivered services. Others used foreign affiliates, especially for services requiring a presence in the destination country. After the 2016 referendum, firms anticipated higher future barriers to cross‑border services. They also experienced heightened uncertainty during the long negotiation period. As a result, UK firms serving EU clients increasingly shifted from direct exports to local affiliate sales, mainly through opening new affiliates in EU countries to serve directly their export markets.

Although this shift helped protect overall service exports by reducing exposure to new barriers, it came at a cost. Firms more easily able to switch modes (such as those in ICT, advertising, engineering, accountancy and merchanting services) saw larger declines in domestic employment, as activity moved to foreign affiliates. Medium‑sized and highly productive firms were the most likely to switch modes. By contrast, EU firms exporting to the UK did not increase affiliate sales. Instead, affiliate activity in the UK declined, consistent with a fall in EU‑UK investment flows. Overall, the findings provide strong evidence that mode substitution played a central role in firms’ responses to the changed trading environment.

Research impact

This work provides one of the first detailed analyses of how firms adjust their trade in services in response to policy shocks. The findings have the potential to inform UK trade policy, particularly in designing future services agreements with major partners.

The evidence from this research was cited in the Economic and Fiscal Outlook (March 2024) published by the UK Office for Budget Responsibility. Discussions with HM Treasury officials have further strengthened its policy relevance, contributing to ongoing debates on the design of policy relating to trade and investment.

The research was also cited in a UNCTAD report on service trades in 2024 showing how firms switch between supply modes in response to policy shocks. The project provides evidence that can inform World Trade Organization negotiations and the design of trade agreements, particularly in balancing market access with domestic employment.

By showing that firms can substitute between different modes of supply, but at a cost to domestic employment, the study highlights the importance of trade agreements that reduce barriers across all modes of services. The research has been presented at major academic and policy conferences across Europe, and forms part of ongoing comparative work on the global effects of trade barriers on services.

Research outputs

Publications and reports

• Working Paper (2024): Should We Stay or Should We Go? Firms’ Decisions on Services Mode of Supply
• Economic and fiscal Outlook (March 2024)

Blogs, news posts and audio‑visual

• VoxEU Column (2024): Brexit and the globalisation of UK service firms
• BBC Radio 4 “The World This Weekend” (2024)
• The Economist (2023): Britain’s services exports are booming despite Brexit. Why?

Presentations and awards

• Presentation at London School of Economics Trade Seminar Series (2024)
• Presentation at WIEN Research Workshop on Globalisation (2025)
• Presentation at CESifo Global Area Conference (2024)
• Presentation at the Royal Economics Society Conference (2023)
• Presentation at the University of Geneva Trade Workshop (2025)
• Presentation at the CEPR Women in Economics Seminar (2025)
• Presentation a the PSE- Science Po Trade Seminar Series (2025)
• Shortlisted for the ONS Research Excellence Awards (2025)

About the ONS Secure Research Service

The ONS Secure Research Service is an accredited trusted research environment providing secure access to de‑identified, unpublished data using the Five Safes Framework.

If you use ONS SRS data and would like support developing a future case study, contact SRS.Impact@ons.gov.uk. Please also report outputs using the Outputs Reporting Form.