British business exhales as February’s trade statistics show a modest recovery

It should have come as no surprise that the UK’s trade statistics for February, published this morning, showed a modest improvement in exports to and imports from the European Union. 

The end of the Brexit transition period, which took effect on 1 January, was bound to be a shock to the system, and the Coronavirus crisis, then at its peak, didn’t make the situation any easier. 

So any improvement was sure to be good news. But the fact remains that trade with our erstwhile EU partners remains in the doldrums, and the trade winds with the rest of the world have yet to start blowing. While there is still a long way to go before a sustainable pattern can be discerned, the early signs continue to give cause for concern. 

The figures for January were dismal: a 43 per cent drop in sales of goods to the EU and a fall of 21 per cent in purchases from the bloc, resulting in a yawning trade gap, in Europe’s favour, of £7.3bn. 

The rebound in February is, shall we say, encouraging. Exports went up 46.6 per cent over the figure for January, to a value of £11.6bn, while imports rose by 7.3 per cent, to £17.1bn. The gap thus narrowed to £5.5bn which, nevertheless, if annualised, would mean a discrepancy of around £56bn. 

With the wider world – said now to be our oyster – exports actually fell in February, month-on-month, by 10.5 per cent, to £12.7bn, against a 10.2 per cent increase in imports, to £17.9bn. There is no way of sugar-coating the resulting deficit of £5.2bn.  

Given the circumstances, and with Britain poised to emerge from the Covid downturn earlier than most rival economies, particularly those in the EU, the outcome post-Brexit could have been worse. But the truth remains that there is as yet no hard evidence for the proposition, advanced by Leave, that resigning from the European Union would make Britain more of a player in global markets. For now at least, what we have lost in trade with Europe, we have also lost in trade with the rest of the world. 

Britain’s Remain press – the Guardian and Observer, Independent, New European and Politico – are in no doubt about which way the wind is blowing. Quoting the UK Road Hauliers Association and the French customs inspectorate, they have reported that half, or more than half, of lorries bringing goods from Europe are returning to Calais empty. Small and medium-sized British companies that have traded with customers on the Continent for decades are, they tell us, drawing back, daunted by a blizzard of paperwork and rafts of increased costs.  

But there are also pull-factors at work. UK firms have been hit by reduced demand for their products resulting from the fact that many European customers are re-sourcing supplies away from the UK and towards manufacturers inside the Single Market. Why, after all, go through all the palaver of importing from Britain when you can get what you need from Austria, Portugal or the Czech Republic? 

We don’t have to fret about the performance of our largest corporations which, along with the City of London, can still be relied on to do most of Britain’s heavy lifting. FTSE-100 companies, most obviously in the fields of engineering, chemicals and pharmaceuticals, have spent the past year building up their cash reserves and are expecting to take early advantage of the anticipated economic recovery. It is firms a notch or two down from these giants that face the most acute difficulties.  

Those with the necessary resources and workforces of 250 and more are typically responding by setting up subsidiaries in the EU, usually in Belgium or the Netherlands, that act as intermediaries between buyers and sellers. Employing local staff, they are registered in Europe and take care of the bulk of the paperwork. Thus, a buyer in Leipzig looking for a widget made in Halifax orders it from the company’s office in Ostend, which stockpiles the relevant part and sends it on without the buyer having to deal directly with the vagaries of Brexit.

The only problem is that the West Yorkshire company now has to maintain a warehouse in Ostend staffed by highly-paid, Euro-savvy Belgians, leading to staff cuts at home. And the result? Profits, while back from the brink, are still down on what they were in past years. 

For smaller, family-run firms that cannot possibly afford to set up in Europe, the choice is more stark: plough on or give up. Many, it has been reported, have decided to give up. The game, it turns out, is not always worth the scented candle. 

Let me give you one, admittedly very particular, example of what has changed. A Hampshire man I know, who served 20 years in the Army, runs two shops in Brittany that supply the local expat community (but also the more discerning French), with the likes of Cornish pasties, sausage rolls, English bacon, Cheddar cheese, marmalade, curry sauces, biscuits and crisps. But when he returned in January from a trip to Portsmouth, his van laden with the usual stuff, he was presented in Cherbourg with an import bill totalling £1,400. No such charge had been imposed when he last visited England in December 2020. His business was threatened with ruin. 

But, an enterprising chap, he has since switched suppliers from Portsmouth to Wexford. Most of his goods on sale now come from Ireland, not the UK. Indeed, a delivery firm based in Cork brings him everything he wants without the need for him to cross the Irish Sea. The newcomer doesn’t only supply my friend, he delivers to similar establishments across North-West France. He rolls on to the ferry in Rosslare and rolls off again in Cherbourg or Roscoff without fuss or bother, not merely sustaining businesses that would otherwise have foundered, but, ironically, making their lives easier.

You might think that British foodstuffs no longer being sold to France could be sent instead to Northern Ireland, where the post-Brexit border down the Irish Sea has resulted in empty shelves in shops and supermarkets. But sadly, there is paperwork involved here as well and, while Britain and the EU look for ways of easing the situation (which might yet happen), a number of UK wholesalers have pulled out of the business entirely, leaving Ulster to fend for itself, dependant, like my friend, on its neighbours in the Irish Republic.   

The British fishing fleet, meanwhile, finds itself in the midst of a crisis that for some reason it never saw coming. Hundreds of trawlers are routinely tied up in port. According to James Withers, the head of Scotland Food & Drink, sales of fish by Scottish trawlers in January were in many cases less than 10 per cent of what they would normally be. It is not just a case of teething problems. In some cases, he said, “the door to the EU has now been shut completely”. 

Barry Deas, chief executive of the National Federation of Fishermen’s Federations, told his members in 2017 that a properly negotiated Brexit would place the British fisheries sector among the world’s elite.  

“Leaving the EU,” he said, “is going to be a complex process and we probably won’t know all the consequences for many years or even decades, but from day one fishing is going to be different because the decisions on quota shares and access will not be made by the EU Council of Ministers or the European Parliament.” And when it came to international negotiations, the United Kingdom “has a strong hand to play.” 

So how did that work out? Four years on, in warning of a “major battle” ahead, Deas admits that “higher costs and a dramatic increase in the quantity and complexity of customs declarations” have become part and parcel of the new fisheries regime. The EU, he says, is determined to “undermine and dilute” Britain’s right to control its own waters.

Whatever the truth long-term about Britain’s strong hand, the results are plain to see: a sharp decline in sales into the EU market and a corresponding rise in the volume of unwanted fish rotting on British quaysides. 

But while fishing accounts for less than 1 per cent of the UK’s GDP, the City of London, responsible for a whopping 22 per cent of what we earn, is also facing into strong headwinds. In the case of the Square Mile, the impact of losing its passporting rights into the Single Market is likely to be measured only in a few percentage points. But the billions soon add up. The fear is not that the City is about to go bust – that isn’t going to happen – but rather that, for some years into the future, unless it is accorded EU “equivalence” or some other mutal agreements by Brussels while simultaneously extending its global reach, its income is bound to fall, not rise – which was not exactly the promise of Brexit.