UK exports to the EU climbed by £3.7 billion in February, in a sharp reversal of the downward trend in January which saw a £5.6 billion plunge in the total value of exports to the bloc, newly published data by the Office for National Statistics (ONS) shows.
Monthly exports to the EU increased by 46.6% to £11.6 billion, driven by demand for cars, medicinal and pharmaceutical products. UK imports from the EU recovered more modestly by £1.2 billion (7.3%) to £17.1 billion, according to ONS data. The more robust recovery in UK exports to the EU, compared to UK imports from the EU, is possibly attributed to the different timelines for new import checks. Specifically, UK exports to the EU have been subject to new border controls since 1 January. The equivalent import checks on EU goods into the UK were initially scheduled to take effect from 1 April. This may have prompted EU-based traders to pause exports to the UK until greater visibility of the new regime emerged, after which trade should return to monthly trend levels. However, in mid-March (after the period for this trading data), the UK government delayed introducing EU import checks on goods to support the build-out of necessary infrastructure and provide businesses with more time to prepare, given that the pandemic had intensified existing problems. Most import checks have been pushed back to 1 January 2022.
The new ONS data will help diminish fears that the early new year trading plunge was a harbinger of a post-Brexit permanent collapse in trading with the EU. More likely, January’s precipitous trading decline was transitory and a function of several interrelated factors, including preparatory stockpiling in November and December in anticipation of border disruption, the impact of the UK’s third national lockdown in early January, and pandemic-induced global supply chain disruptions as well as Brexit border disruptions. These influences combined to soften demand for imports, which will likely recover in line with the attenuation of these drivers.
The ONS trade data for February contrasts with quarterly survey data by the British Chamber of Commerce (BCC), whose Q1 Trade Confidence Outlook survey shows a gloomier picture. According to the survey, more than four out of ten UK exporters (41%) reported decreased export sales over Q1 (up from 38% in Q4 2020), while just two out of ten (20%) reported increased export sales (down from 22%). The balance – 40% – said no change in export levels. Hotels/catering firms and retail/wholesale firms were the worst hit, with 81% and 60% of respondents respectively reporting a decrease in export sales this quarter. The BCC suggests UK export sales are at some of the lowest levels ever recorded in its data with structural issues to ongoing trading related to the UK–EU Trade and Cooperation Agreement (TCA). If left unaddressed, it could lead to long-term, potentially irreversible weakness in the UK export sector, warned the BCC.
However, this survey data represents the self-reported experience of around 2,900 UK exporters while the ONS trade data is sourced from HMRC and represents trade in goods which accounts for more than 90% of trade in goods value. Furthermore, BCC’s data blends self-reported experience across the entire first quarter, masking the possible uptrend since February relative to the start of the new year.
Last month, the government launched the £20 million SME Brexit Support Fund to provide UK exporters with access to practical support, including training for new customs procedures and regulations, rules of origin and VAT processes. Inevitably, trade bodies, including the BCC, representing exporters in hard-hit industries, suggest “the scale of ambition needs to be much greater”.
A new independent commission composed of cross-party MPs and business leaders, which aims to scrutinise and suggest improvements to the UK–EU trade agreement, met for the first time on Thursday 15 April to hear evidence on the impact of trade barriers between the EU and UK. The group includes Labour MP Hilary Benn, Conservative MP Roger Gale, Virgin Group Chairman Peter Norris, and former global managing partner of Allen & Overy, Andrew Ballheimer.
Meanwhile, UK gross domestic product (GDP) grew by 0.4% in February, according to separate ONS data, 20 basis points below the 0.6% consensus forecast. However, this return to economic growth follows revised estimates of January’s decline in output which was revised upwards from -2.9% to -2.2%, in a surprise to the upside. February’s slight increase in output leaves the UK economy 7.3% below the pre-pandemic level, which is lower than the estimated 7.8% estimated, according to Capital Economics. The UK economy is now forecast to recover to its pre-Covid levels by the middle of 2022, according to a survey of economist by Reuters. In the same survey, unemployment is forecast to peak at 6.2% towards the end of 2021 and aligned to the end of the Coronavirus Job Support Scheme (CJSS), currently extended until 30 September 2021.