Following the release of new data showing that UK exports to the EU in January plummeted by 40.7%, while imports dropped by 28.8%, business associations have voiced concerns that Brexit could have a lasting impact on trade levels.
Figures from the Office for National Statistics (ONS) reveal that from December 2020 to January 2021, UK goods exports and imports to the EU plunged by £5.6bn and £6.6bn respectively, marking the largest monthly fall since comparative records began.
The biggest drops in exports to the EU were seen in the chemicals – particularly medicinal and pharmaceutical products – sector, which decreased by £1.6bn, as well as the machinery and transport equipment sector, which fell by £1.2bn.
In terms of specific countries, GTR analysis of ONS data shows that some of the largest declines in exports – in terms of values – were seen in trade with Germany, France and Ireland.
UK goods exports to France fell by 45% (£1.6bn to £862mn), to Germany by 41% (£2.8bn to £1.7bn), and exports to Ireland plunged by 46% (£2.2bn to £1.2bn) from December last year to January this year.
The fact that the decline in EU trade has coincided with the Brexit transition period drawing to a close on December 31 has only amplified criticisms that the UK-EU’s new trading relationship has harmed exports and imports.
The ONS cautions in its release, however, that a number of different factors may have driven the drop in trade, including the rollout of a new UK lockdown in January and the “erratic” nature of monthly statistics.
It also points to a rise in potential stockpiling by European and UK companies in the run-up to the end of the EU transition period on December 31 as a reason why firms may have needed to trade less in January.
The ONS notes that corporates – in particular those in machinery and transport equipment, as well as chemicals – began to increasingly export and imports goods in November and December in preparation for the end of the transition period.
In one notable example suggestive of stockpiling, the ONS says that UK exports of medicinal and pharmaceutical products to Ireland grew by 224% in the three months to December 2020, and increased by 283% compared with the same period in 2019.
In response to the ONS data, a UK government cabinet office spokesperson tells GTR that stockpiling was one part of a “unique combination” of factors which led to an “inevitable” decrease in exports to the EU over the period that followed.
Dismissing the idea that the data reflects the “overall EU-UK trading relationship post-Brexit”, the spokesperson says that Covid lockdowns across Europe, as well as the need for businesses to adjust to the new trading relationship, were other reasons behind January’s fall.
Continuing border issues?
According to David Frost, former Brexit negotiator and current UK cabinet member, these effects are now starting to “unwind”, and the latest information indicates that overall freight volumes between the UK and the EU have been back to their normal levels since the start of February.
But trade bodies say that the ONS January trade statistics highlight that the issues plaguing exporters and importers won’t disappear overnight, and higher costs and lengthier delays are still expected to hinder UK-EU trade.
Last week, the UK government announced a six-month delay to the introduction of import checks on EU goods into the country, after groups such as the British Retail Consortium warned that many key border control posts aren’t ready for processing documents or doing physical checks.
Andrew Opie, director of food and sustainability at the British Retail Consortium, says there was a risk that consumers might have seen empty shelves for some products from April 1, had the government not acted.
Meanwhile, Suren Thiru, head of economics at the British Chambers of Commerce, says that the practical difficulties faced by UK exporters go well beyond just “teething problems”, and that “trade is likely to be a drag on UK economic growth in the first quarter of 2021”.
“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,” Thiru adds.
Make UK, a trade body for UK manufacturers, has also said in recent weeks that exporters are losing out on future orders as a result of delays and “problems at ports”.
According to a Make UK survey, released last week, almost three-quarters of UK manufacturing firms that responded to the survey had experienced some sort of delay since January 1.
Meanwhile, nearly 30% of firms said they are experiencing delays of between one and two weeks, with more than half saying this led to increased costs.
“Many container ships will not stop in the UK at present, due to delays at British ports. This is resulting in goods bound for the UK being offloaded in EU ports, impacting heavily on production schedules and lead times with companies forced to make alternative and costly arrangements to have their orders delivered,” the report reads.
In all, over a third (35%) of manufacturers said they have lost revenue, with one in five losing potential business.
Manufacturers cited various government interventions that would help mitigate the impacts of these delays, including assistance with export documentation, better trained customs staff, as well as clearer guidance on import and export paperwork.
Make UK’s CEO Stephen Phipson says the trade body is encouraged that the government is already working to train more customs officials and provide more assistance with customs paperwork, in a bid to smooth out difficulties at UK ports.
But he says this needs to be “driven forward at speed to give the quickest possible assistance to British companies already struggling to get back to normal as trade recovers from the Covid pandemic”.
He also calls for the government to work with EU partners to alleviate ongoing delays at the border and “iron out” different interpretations of the rules for movement of goods in separate member states.
Exporting further afield
One major justification for Brexit has been the touted opportunity for British businesses to boost trade with counterparts beyond the EU.
An integrated review of security, defence, development and foreign policy – published by Downing Street this week – appears to signal where the UK intends to look to forge trade ties and build new diplomatic relationships.
Speaking about the review, Ross Denton, head of international trade at law firm Ashurst, says: “From an economic perspective, the UK appears to be pivoting away from the EU and focusing its diplomatic and trade efforts in Southeast Asia, or more precisely the Indo-Pacific region.”
He notes that the UK has already signalled its ambition for growing ties with this region by applying to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and building deeper and broader links with Asean.
Meanwhile, the UK is currently in discussions with Australia and New Zealand over bilateral free trade agreements (FTAs) with each nation, having already concluded an FTA with Japan, and a “rollover agreement” with Singapore.
Such developments could well be crucial for UK exporters looking to trade overseas, a survey of 1,000 businesses by HSBC in January, suggests.
As part of that study, 62% of respondents said that FTAs will be important to growing profits in the future, while just over a third say that they would want a trade deal to be in place before considering a new overseas market.