Little scope for post-Brexit tariff reductions to cut consumer prices significantly

“One argument put for the UK leaving the EU Customs Union is the chance to reduce tariffs that the EU currently levies on imports in order to reduce prices faced by consumers. Complete abolition of tariffs would reduce consumer prices by at most 1.2%, a figure which is not large when compared with the estimated 2% increase in prices due to the sterling depreciation that followed the referendum result, and one that is likely to be an overestimate. This is because tariff rates are not particularly high on average, especially when one accounts for the EU’s various trade agreements. In addition, the costs of goods imported from outside the EU make up only a relatively small fraction of UK household spending. If tariff reductions were restricted to products that the UK did not produce domestically, as some have proposed, the impact on prices would be smaller still.”

Peter Levell is a Senior Research Economist at the IFS as well as a PhD candidate with the UCL Department of Economics.

Full analysis is available to download from the IFS website.