Exports to EU plunge by £5.6bn in first month since Brexit

Fall of 40.7% comes as UK economy in January shrinks by most since first wave of Covid pandemic

UK exports of goods to the EU plunged by 40.7% in January during the first month since Brexit and the toughest Covid lockdown since the first wave of the pandemic, contributing to the biggest monthly decline in British trade for more than 20 years.

In the first month since leaving the EU on terms agreed by Boris Johnson’s government, the Office for National Statistics said goods exports to the bloc fell by £5.6bn, while imports fell by 28.8%, or £6.6bn.

Exports of food and live animals to the EU, which includes seafood and fish, were the hardest hit by Brexit, collapsing by 63.6% in January.

This reflected heavier disruption and additional checks for consignments from this sector that prompted furious protests from the fishing industry. However, food and live animals account for only 7% of total UK exports.

After stockpiling and disruption at UK borders in the run-up to the Brexit transition, the decline also came as the economy shrank the most in January since the first wave of the pandemic, with gross domestic product (GDP) falling 2.9% from the level in December.

The ONS said the January performance was the worst since monthly records began in 1997, as a 1.7% rise in non-EU trade, worth £200m, failed to make up for the plunge in cross-border activity with the UK’s biggest trading partner. Overall, global UK exports and imports fell by about a fifth.

Although January’s GDP figure represents the biggest contraction since the first lockdown almost a year ago, analysts had forecast a bigger decline of 4.9%, suggesting that businesses and households adapted better to harsh restrictions than during the first wave of the pandemic, when GDP fell by more than 20% in April 2020.

Experts said the scale of the decline in January trade was unlikely to be permanent because there was evidence companies stockpiled goods before the Brexit deadline, meaning they would not need to send as many shipments as usual in January. The decline was lower than a 68% plunge anticipated by road hauliers, while the ONS said there were signs trade had started to pick up at the end of the month.

The closure of shops during the Covid-19 lockdown reduced demand for clothing shipments, while car production fell and exports were weak to EU countries with coronavirus restrictions.

Alongside stockpiling, Covid disruption and lockdown, the ONS also changed the way it collects export data after Brexit, which could mean it takes longer to record some UK goods shipped to the EU. However, economists said Brexit still had a telling impact in January despite difficulty disentangling multiple pressures on the economy.“Brexit made a bad situation worse in January,” said Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics. “Our view remains that Brexit is best seen as a slow puncture, rather than a sudden blowout, with the costs gradually accumulating in the form of lower investment and immigration than otherwise would have been the case.”

Although the government has admitted that “teething problems” at the start of the new relationship have affected cross-border trade, business leaders are warning that lengthier delivery times and higher costs are likely to remain as an endemic feature of Brexit.

Suren Thiru, the head of economics at the British Chambers of Commerce, said: “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 government on Thursday was forced to delay the introduction of further post-Brexit import checks by six months – a U-turn because a network of 30 border posts being built to process incoming goods would not have been ready on time.

A government spokesman said a “unique combination of factors” including Covid lockdowns across Europe, stockpiling last year and business adjusting to the new trade relationship made it inevitable that exports to the EU would fall in January.

“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,” he said.

“Many businesses have adapted well, and our focus now is on making sure that any business that is still facing challenges gets the support they need to trade effectively with the EU.”

source: Richard Partington

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