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Boris Johnson and Scott Morrison celebrate a trade deal between their two countries in June 2021.
Boris Johnson and Scott Morrison celebrate a trade deal between the UK and Australia in June 2021. Photograph: Tayfun Salcı/Zuma Wire/Rex/Shutterstock
Boris Johnson and Scott Morrison celebrate a trade deal between the UK and Australia in June 2021. Photograph: Tayfun Salcı/Zuma Wire/Rex/Shutterstock

‘Perfect storm’: a look back at a tumultuous year of Brexit and Covid

This article is more than 2 years old
Economics correspondent

Analysis: UK trade has taken a double whammy and few believe new deals can make up the loss

When Britain fully left the European Union in January, it marked the start of a very difficult 12 months for the entrepreneur Rob Law, whose Trunki children’s suitcases used to sell well in mainland Europe.

“We’ve had so many logistical challenges,” he said. “It’s been the perfect storm.” While trade has picked up since the start of the year, supply bottlenecks and the coronavirus Omicron variant have added to the challenges posed by the end of the transition period.

In 2021, companies across Britain have suffered from the worst trade disruption in recent memory, as problems caused by Brexit collided with the pandemic.

However, it is Brexit that Law fears will have a permanent impact. “There’s always going to be more cost, more delays; it’s never going to be as smooth as it used to be,” he said.

In November, the government committed to boosting UK exports of goods and services from £600bn to £1tn by 2030, under the banner “Made in the UK, sold to the world”. A year-end look at what Brexit has delivered so far suggests reaching that target will take more than a 12-point plan and a new slogan.

The most up-to-date figures from the Office for National Statistics (ONS), which cover the first 10 months of the year, show goods exports to the rest of the world are down by 14%, or more than £40bn, compared with 2019.

For UK trade with the EU, exports have risen by 6%, or about £7bn, in the year to October compared with the same period in 2020, in a recovery from the worst economic fallout from the coronavirus pandemic. However, they remain 13%, or about £18bn, down on the same periods in 2019 and 2018. .

exports

The aggregate figures obscure how certain sectors have suffered dramatic shortfalls, in what could mark permanent structural changes. Outbound shipments of clothing and footwear to the EU are both down by about 60% compared with 2019. Meat exports have plunged by almost 25%, vegetables and fruit are down by an even steeper 40%. Fishing, held up by Brexiters as a sector that would benefit from being unshackled from EU rules, is now nursing a 15% fall in exports.

The unravelling of British textile exports could be down to “rule of origin” requirements, which require a proportion of a product to be domestically produced to benefit from a trade deal. This is because a high proportion of clothing sold by UK retailers is made in Asia or the US, making them ineligible for the tariffs negotiated in the post-Brexit trade deal.

Michael Gasiorek, director of the UK Trade Policy Observatory at the University of Sussex, said: “In textiles and clothing it is almost certainly associated with rules of origin and having to pay tariffs on exports to the EU; in food products it is probably to do with customs controls and the costs of checks on standards, and possibly from transport and logistic complications.”

imports

Fish and meat exporters say they have been hit by higher costs for sending lorry shipments through ports, with an army of extra workers required to deal with additional bureaucracy and paperwork.

Figures from the ONS show more than a quarter of firms currently trading in the UK have seen a rise in their costs.

Other data shows UK exporters have been losing market share. Work by the Netherlands Bureau for Economic Policy Analysis on trade by advanced economies shows goods exports for the month of September were just 1.3% below the monthly average in 2018, after adjusting for inflation. In the UK, however, real exports were almost 15% down in the same month.

Few expect the free trade deals struck by the foreign secretary, Liz Truss, and her successor as trade minister, Anne-Marie Trevelyan, will make up for the drop in business – the EU is the UK’s nearest and biggest market, and still accounts for almost half of trade.

Official government figures estimate the free trade deals signed so far – including those with Australia, New Zealand, and Japan – will add less than 1% to UK GDP over 15 years. A trade deal with the US would produce the same as these small deals combined, experts say, still not enough to make up the EU shortfall.

“It’s crazy what they’ve done,” said Angus MacNeil, the SNP chair of the Commons international trade committee. “I compare it to saying we need six or seven planets populated entirely by Americans to make up for Brexit.”

For Trunki, sales in Britain are back to pre-pandemic levels as families bought more wheelie suitcases and bags in anticipation of going on holiday, but EU sales are still at 80% of 2019 levels.

Law plans to open a German distribution hub to sidestep delays and red tape for shipments sent directly to customers from the firm’s Plymouth factory, after an earlier plan to set up a base in the Netherlands started to unravel. He is optimistic that despite the challenges he will keep trading, even with the extra barriers.

“It can’t be as bad as this year, it can’t be as bad as January with not being able to get things out of the country. It can’t be,” he said.

Exports to the EU also ground to a halt in January for North Shields-based recycling firm ECS Textiles, stymied by border checks and paperwork for the assorted items of clothing, toys and bric-a-brac it would send to Latvia by sea each week. The firm has since given up on selling to the EU, having found a buyer in Russia and Belarus instead.

“The [Brexit] deal was obviously done very last-minute, and it was very slapdash,” said James Officer, sales manager at the firm.

While some might say expanding horizons outside of the EU is part of the point of Brexit, Officer disagrees. Selling to Russia and Belarus isn’t as profitable, and the countries he now does business with carry significantly more risk.

As Belarus descended into political turmoil, and the UK introduced financial sanctions to punish the Lukashenko regime, ECS almost went bust after its bank account was frozen for nine weeks because it was receiving payments from the country. The local Labour MP, Alan Campbell, stepped in and helped resolve the situation.

“You’re out of the frying pan with Europe and into more hot water in Belarus. Brexit absolutely was not a good thing for our business. I haven’t seen any benefit,” Officer said.

Britain’s chaotic year for trade is not all down to Brexit. Major economies the world over have faced Covid disruption – with lockdowns in China and the worst backlogs on record in southern California – caused by pandemic restrictions, shortages of lorry drivers and mismatches in supply and demand.

In the UK, car exports are down 30% on 2019 levels, held back in large part by shortages of microchips around the world.

Chemical exports, on the other hand, have performed more strongly than anticipated, up 5% on 2019 levels, despite warnings the sector stood to be among the biggest losers from Brexit. Chemicals have been in part protected because regulations covering the industry remain in line with EU rules – for the time being.

While economists say it is difficult to disentangle the effects of Covid and Brexit, many business leaders argue leaving the EU has made a bad situation worse. There is concern over a further worsening of relations with France, and if negotiations over the Northern Ireland protocol end in stalemate.

Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said: “A renewed trade spat likely would ensure that global manufacturers remain reluctant to locate production facilities in Britain, thereby undermining exports in the medium term.” He cautioned that the competitiveness of UK goods could start to decline “indefinitely” as tougher migration rules push up labour costs and a departure from EU safety standards restricts where products can be sold.

The £1tn export target is likely to be about 67% higher than total trade volumes this year. It might not be reached at all. On current form, said Tombs, the target “looks like another Brexit fantasy”.

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