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Twelve months after embarking on a new life outside of the European Union, the impact of the twin pressures of Brexit and the COVID-19 pandemic on U.K. trade is becoming clearer.

 

Although untangling the effects of both seismic events is challenging, it is clear the U.K. has performed worse than comparable EU economies, according to analysis by POLITICO.

 

Despite signing a raft of new trade deals since leaving the bloc, including so-called rollover deals that allowed trade with more than 60 signatory countries to continue on similar terms to those enjoyed when the U.K. was still a member of the EU, the impact of Brexit on Britain’s supply chains has been enormous.

 

Trade with the EU dropped immediately at the end of the Brexit transition period in January 2021, with U.K. exports to EU countries falling by 45 percent on the previous month and imports decreasing by 33 percent. Imports from the EU are still tracking below pre-pandemic levels, while 52 percent of all trade in the first 10 months of 2021 was with non-EU countries.

 

And it’s clear that without EU membership, the picture for U.K. trade is only going to keep changing, as Britain has thrown its usual supply chains up in the air. “U.K. companies have no markets in which it is now easy to trade,” said trade expert David Henig, U.K. director of the European Centre for International Political Economy.

 

While EU countries have largely recovered to pre-COVID levels of trade, the same cannot be said of the U.K., where flows in Q3 2021 were the lowest value relative to GDP seen since 2009.

 

“The more positive spin on this is there is a lot of transition effect as we get used to the new. The really negative part is that trade in the rest of Europe was going up and ours was not,” said Henig. “You can’t put a load of barriers up to 50 percent of your trade and not have an impact. There’s an inevitability there.”

 

James Sibley, head of international affairs at the Federation of Small Businesses, said SMEs have “suffered disproportionately” from the effects of COVID-19 and Brexit. “We see in our data the number of SMEs that have either been experiencing lower trade volumes, disruption or have just stopped exporting has been quite high and quite significant,” he said.

 

“Faced with harder trade with the EU, companies will look towards other options globally,” argued Henig. “But those won’t ever be as easy as trade with the EU used to be, so it’s still going to be difficult.” Despite this, Henig predicted that trade with non-EU countries will be “more the area of growth,” while also forecasting a “greater focus on services compared to goods” in 2022.

 

In December, the U.K. signed a free trade agreement with Australia and has a deal in principle lined up with New Zealand. Could this help compensate for lost EU trade? “[Trade deals] are usually going to be positive for the economy, but only on a small scale, they’re not going to replace a deep integration with your neighboring markets,” said Henig.

 

After the major disruption of 2021, Sibley predicted that some exporters will “overcome the challenges they’ve faced this past year.” However, difficulties remain for smaller businesses less able to stomach higher costs, and firms face fresh disruption at home with new EU import controls now in force and more due later this year.

 

On a note of optimism, Sibley said there is an “appetite to explore new markets” among FSB members, with increased interest in the opportunities presented by the FTAs with Australia and New Zealand. “We do see that coming through, for sure,” he said.

Published on January 16, 2022.