UK-EU trade plunged in January. Is Brexit to blame?

Trade between Britain and the EU in January was the lowest since records began in 1997, according to the Office for National Statistics.

British exports to the EU plummeted 40.7 per cent (£5.6 billion) and imports from the bloc also fell sharply 28.8 per cent (£6.6 billion). These sharp drops in trade with the UK’s biggest trading partner have had a big impact on the UK’s overall trade figures with total exports dropping by 19.3 per cent (£5.3 billion) and imports falling by 21.6 per cent (£8.9 billion).

The government has been quick to insist that things are better than they seem. Lord Frost, the Cabinet minister in charge of Brexit, pointed out that the ONS itself expressed caution about extrapolating too much from these figures and that drops in trade volume were likely caused not just by post-Brexit friction but also by renewed lockdowns and the effects of pre-Brexit stockpiling. Another mitigating factor is that trade volumes often drop in January as consumption undergoes a post-Christmas lull. Frost also claimed that the latest figures showed trade volumes had since rebounded back to normal.

Others, however, have painted a different picture. According to Paul Mummery, a spokesperson for the Road Haulage Association: “What we’ve seen – whatever the government says – is a significant drop in trade and there is no denying the presence of a Brexit effect.”

Mummery was also sceptical of claims of a quick bounce back. “Yes, the picture is improving. Firms are starting to get their heads around the mountains of new paperwork and red tape but it’s a slow process. This isn’t just teething problems – we’re in for the long haul.”

Digging into the figures it seems hard to deny Brexit is responsible for a large portion of the drop in trade.

Crucially, trade with non-EU countries did not see comparable decreases. Imports from non-EU countries did fall by 12.7 per cent – but this is less than half the drop with the EU. Meanwhile, exports to non-EU countries actually rose slightly, by 1.7 per cent – perhaps buoyed by the signing of a free trade agreement with Singapore.

However, at least some of the decline in trade does seem attributable to the pandemic and stockpiling. Cars and pharmaceuticals were the two sectors that saw the sharpest decline in both exports and imports. Car sales plummeted in both the EU – the UK’s biggest automobile export market – and in the UK itself in January, driven in large part by renewed lockdown restrictions.

Meanwhile, pharmaceuticals were stockpiled in large quantities pre-Brexit for fear of ‘No Deal’ disruption reducing the need for imports in the short-term. Yet this doesn’t explain why exports of pharmaceuticals and other medical products to the EU would drop – especially mid-pandemic.

It is also worth noting while these sectors account for the biggest hits in terms of value, others have been hit even harder. Export of food and live animals to the EU has dropped by 63.6 per cent. This tallies with reports since January of angry fishermen struggling to export their catch and tens of thousands of pigs stuck on British farms.

Overall, the Centre for European Reform estimates that Brexit led to total UK goods trade falling by 22 per cent.

Are the drops in trade attributable to Brexit simply teething problems that will be ironed out as businesses get used to moving goods across borders, as Frost suggests? Or are they here to stay?

The evidence is mixed. Statistics on the number of ships visiting UK ports – usually a good indicator of trade trends – show that while numbers are still much lower than this time last year they have rebounded noticeably from their January lows. The number of businesses saying that they are unable to import or export has also dropped since January, according to the ONS Business Insights survey.

Yet the same survey also found that the majority of businesses still say that they are still experiencing challenges with importing and exporting.

Mummery says that improving matters will be tricky: “Currently we estimate the UK has about about 10,000 customs agents” – employees at private firms who process the necessary paperwork for customs checks – “and we need about 50,000.” Training the missing 40,000 fully could take years.

If anything the situation could worsen, according to Mummery. While exports to the EU are currently subject to customs checks, the UK has unilaterally waived checks on imports from the EU in a bid to give hauliers time to adapt. Plans to slowly introduce import checks in stages between 1 April and 1 June were pushed back yesterday, with most now not coming until 1 January 2022.

“When those come in, all I can say is ‘you ain’t seen nothing yet!'” says Mummery. “Hopefully a long grace period will give businesses time to prepare but it’ll alleviate headaches, not resolve them. Businesses will find a way – they always do – but the fact is we have long had frictionless trade with the EU. Getting solutions for this means the UK and the EU Commission both need to pull their fingers out.”