UK exports to the EU dropped by 40.7 per cent in January 2021, according to ONS figures.
This was the first month after the Brexit transition ended, with customs rules changing and firms contending with extra paperwork. The ONS added that imports were also down by 28.8 per cent (£6.6bn) in January.
Much of this is likely to be what the ONS calls ‘temporary factors’. These include concerns around the outcome of the Brexit deal as well predictions of a third lockdown towards the end of 2020. Stockpiling in anticipation of these events were likely to contribute to the fall.
However, there were no similar falls in Britain’s trade in non-EU countries, suggesting that Brexit has been a greater contributing factor.
Yael Selfin, chief economist at KPMG UK, said that Brexit was the most likely reason for doing less business with EU countries, but she foresees a recovery: “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 scale of the drop in exports is beyond what most economists expected. In fact, it’s the biggest drop since records began in 1997. Data also showed that lorries near Britain’s ports dropped by 12 per cent in January.
However, the ONS found other indicators showing that trading had started to recover by the end of January. The Cabinet Office also argues that improved freight volumes after January show that figures were not as bad as they looked.
In addition, the ONS published figures showing that the UK economy shrunk by 2.9 per cent in January as the third national lockdown took effect. By contrast, this a smaller drop than expected and a much smaller drop than in April last year. The services sector suffered the biggest fall and manufacturing was also down, with construction up slightly. The economy is now nine per cent below its pre-pandemic high.