Brexit hits UK with 40% drop in EU trade

By Jeph Ajobaju, Chief Copy Editor

More ramifications of Brexit are emerging for the United Kingdom which has already lost some of London’s prestige in global financial business to other European cities at home with international players.

UK goods exports to the European Union (EU), its biggest trading partner, fell 40.7 per cent in January while imports tumbled 28.8 per cent.

Buffeted by Brexit uncertainty and by coronavirus, the UK economy had shrunk 9.9 per cent in 2020, the largest Gross Domestic Product (GDP) dip in three centuries.

Covid-19 pandemic effectively wiped out all growth in the UK over the last seven years, returning the economy close to the size it was in 2013.

The 9.9 per cent slump was less severe than expected but still surpassed the 9.7 per cent collapse experienced during the Great Depression in 1921, making it the worst annual drop since 1709, according to a Bank of England database.

The latest figures, released by the Office of National Statistics (ONS) and reported by the BBC, show the biggest drop in exports since records began in 1997, and are the first since new trading rules between the UK and the EU came into force.

The ONS said temporary factors were likely to be behind much of the falls.

Meanwhile, new data showed the UK economy shrank by 2.9 per cent in January amid the third lockdown.

The economy is 9 per cent smaller than it was before the start of the coronavirus pandemic.

Non-EU trade grows 1.7%

Both imports from and exports to the EU fell “markedly” in January, the ONS said. The value of goods exported from the UK to the EU fell by £5.6 billion in January 2021, while imports from the EU dropped by £6.6 billion.

The ONS said the fall in goods coming into the country were largely seen in machinery and transport equipment, and chemicals from the EU.

Car imports, as well as medicinal and pharmaceutical products, were particularly affected.

Accountancy firm KPMG pointed to Brexit as the likely culprit for the plunge in trade between the UK and the EU. In contrast, the UK’s trade with non-EU countries grew by 1.7 per cent in January.

KPMG said intense stockpiling in December 2020 had brought some trade flows ahead of the Brexit deadline.

The BBC quoted the ONS as saying companies may have been using up that stock instead of buying new goods in January.

In addition, the end of the temporary trading arrangement between the UK and the EU coincided with the discovery of a new strain of Covid-19 in the UK, which caused further complications and delays, after lorry drivers were required to take tests before crossing the border at the English Channel.

A temporary blip?

The figures are the first since the Brexit transition period ended and show the steepest falls since comparable records began, per the BBC.

However, the ONS said data showed that things had begun to pick up. Firms were reporting that trade was getting easier and trade levels started to recover towards the end of January.

The number of businesses saying they were unable to export between the middle and the final week of January had fallen by 5.4 per cent, it said, and those saying they could not import had dropped by 3 per cent.

The ONS said the data for the period was “erratic”, while Goldman Sachs called it “noisy”, meaning there was a lot going on and it was too early to tell how much of the fall was a temporary blip.

However, the head of economics at the British Chambers of Commerce, Suren Thiru, stressed that “the significant slump in UK exports of goods to the EU, particularly compared to non-EU trade, provides an ominous indication of the damage being done to post-Brexit trade with the EU by the current border disruption.

“The practical difficulties faced by businesses on the ground go well beyond just teething problems and with disruption to UK-EU trade flows persisting, trade is likely to be a drag on UK economic growth in the first quarter of 2021.”

The BBC quoted a government spokesperson as saying that “a unique combination of factors, including stockpiling last year, Covid lockdowns across Europe, and businesses adjusting to our new trading relationship, made it inevitable that exports to the EU would be lower this January than last.

“This data does not reflect the overall EU-UK trading relationship post Brexit and, thanks to the hard work of hauliers and traders, overall freight volumes between the UK and the EU have been back to their normal levels since the start of February.”

Imports from EU tumble 29%

CNN, also quoting the ONS, adds that the UK exported goods worth £8.1 billion ($11.3 billion) to the EU in January, rounding it up as a 41 per cent decline compared to December.

The drop off in trade is similar when compared to January 2020, according to ONS data. The import and export figures do not include trade in gold and other precious metals.

Imports from the EU tumbled 29 per cent to £16.2 billion ($22.6 billion) in January compared with the previous month, when UK companies stockpiled goods ahead of the end of the Brexit transition period.

“The January data on UK trade paint a clear picture: while the free trade agreement for goods that the UK and EU signed late last year has mostly brought an end to four and a half years of uncertainty, it does not hold a candle to free trade without paperwork and other non-tariff barriers that the UK once enjoyed as part of the single market,” said Kallum Pickering, a senior economist at Berenberg.

CNN reports that since the UK completed its departure from the EU on December 31, British exporters have had to contend with new border checks and customs processes that have delayed shipments to Europe.

Prime Minister Boris Johnson’s description of the difficulties as “teething problems” has prompted pushback from business groups.

The ONS said trade has “not been typical in recent months” and urged caution when comparing the report to recent data. The UK also went into a new national coronavirus lockdown at the beginning of January, which has weighed on economic activity.

UK GDP fell 2.9 per cent in January compared with the previous month, when it expanded, according to the ONS. GDP was 9 per cent below levels seen last February, before the coronavirus hit.

The services sector acted as the main drag on growth, while manufacturing suffered its first contraction since April 2020, the ONS said.

Brexit knocks fish, cars

One stark example of what Brexit has meant for UK companies has come from Scotland’s fishing industry, which was thrown into crisis by post-Brexit red tape that meant fresh fish couldn’t reach customers on time and had to be dumped in some cases.

“While the plunges in exports and imports weren’t entirely due to Brexit, they increase the chances that Brexit will have a longer lasting influence on trade flows,” said Paul Dales, chief UK economist at Capital Economics, who spoke to CNN.

According to the ONS, exports of food and live animals including seafood to the EU decreased by nearly 64 per cent in January compared to the previous month.

Trade in cars also fell sharply, linked to a fall in demand, reduced manufacturing and global supply chain issues. Automakers have been hit by a critical shortage of computer chips, which has prompted temporary production stoppages and factory closures.

Pharmaceutical products traded with EU countries suffered the largest overall declines in imports and exports, which was likely a consequence of stockpiling in preparation for Brexit, the ONS said.

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