Britain’s trade with the EU suffered a record drop in January after Brexit controls were added at the border, the first official sign that the rupture with Europe was creating more than teething troubles.
The Office for National Statistics said on Friday that in January, after the Brexit transition period ended, UK goods exports to the EU fell 40.7 per cent in the month and imports dropped 28.8 per cent, the largest declines since comparable records began in 1997.
There were no similar falls in Britain’s trade with non-EU countries, showing the move to be related to Brexit controls rather than the effects of the coronavirus surge and January’s lockdown.
UK goods exports to Ireland fell 47 per cent in January compared with the previous month, the sharpest fall across all UK main destinations.
The trade figures overshadowed relatively favourable data for the whole of the British economy, which contracted 2.9 per cent in January compared with December. This was the largest drop in monthly gross domestic product since spring 2020, but significantly less than economists’ expectations of a 4.9 per cent fall.
Government ministers have claimed that the numerous reports of problems of new border rules and restrictions were temporary, but the figures suggest a wider concern.
James Sproule, chief economist of Handelsbanken in the UK, said the impact of Brexit was “readily apparent” in the trade figures with the larger proportionate drop in exports showing “UK exporters have felt the impact more severely than their European counterparts”.
Yael Selfin, chief economist at KPMG UK, said that although Brexit was the “likely culprit” of the steep fall in doing business with EU countries, she expected a recovery after stockpiling effects dissipated. “The longer term [Brexit] impact on supply chains will depend on how attractive the UK remains and the competition from other locations within the EU,” she said.
The Cabinet Office, however, pointed towards improved freight volumes after January as evidence the figures were not as bad as they looked. “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,” the government said.
Because Britain’s goods trade with the EU is unbalanced, with imports much higher than exports, the drop in the value of imports was larger than that of exports, with a £6.6bn decline in imports from the EU and a £5.6bn decline in exports.
The largest decline in exports to the EU was in food products, which have been hit hard by manufacturers having new layers of bureaucracy imposed on them now the UK is no longer in the EU single market. These plunged 63.6 per cent in January.
There was a 56.6 per cent decline in exports in the chemicals sector as manufacturers raced to export products ahead of the UK falling out of the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (Reach) regulations.
On imports, the largest declines were in the automotive sector and in pharmaceuticals, the ONS said.
In the wider economy, the output volume of goods and services produced in the UK was 9 per cent smaller than in February 2020, before the first Covid-19 lockdown, laying bare the economic impact of nearly one year of the pandemic.
Services, accounting for 80 per cent of the UK economy, was the worst-performing sector, with output falling 3.5 per cent in January compared with the previous month.
But the overall performance was seen as encouraging by business groups. Alpesh Paleja, CBI lead economist, said the smaller drop in output than in the spring demonstrated “the growing ability of businesses and households to adapt to greater restrictions on mobility”.
With schools shut, the education sector contracted 16.3 per cent in January 2021, the second largest contributor to the monthly decline after retail.
In contrast, the health sector made a large contribution to growth in January 2021, increasing 8.7 per cent, mainly through coronavirus testing and tracing and vaccine schemes across the UK.
Factories remained open but manufacturing output fell 2.3 per cent over the same period, the first contraction since April, “largely driven by a fall in exports”, the ONS said.
Source: Economy - ft.com
