Yahoo Finance Exports to Europe return to pre-Brexit levels
Britain’s goods trade with Europe continued a rapid recovery in March, with exports to the bloc jumping a further 8.6pc to hit pre-Brexit levels.
Car exports drove the second month of a rebound from January’s record plunge, according to data from the Office for National Statistics, bringing the total to £12.7bn - roughly at late 2020 levels.
However, EU imports remained depressed. It means the first three months of the year were the first time on record that the UK has brought in more from non-EU countries than from the bloc.
Non-EU imports totalled £53.2bn, 0.9pc lower than the final quarter of 2020, compared to £50.6bn from within Europe - a 21.7pc drop.
The ONS said: “It is too early to assess the extent to which this reflects short-term trade disruption or longer-term supply chain adjustments.”
The figures – which put total sales of British merchandise into the EU towards the higher end of 2020 levels – will build confidence that many companies have been able to shoulder new red tape and regulations brought in as part of the UK-EU Trade & Co-operation Agreement.
David Frost, Prime Minister Boris Johnson’s Europe minister, said he was “very encouraged” by the figures.
Julian Jessop, an economics fellow at the Institute for Economics Affairs, said the continued recovery showed “we haven't seen the sort of long weakness in trade that some people had feared”.
Very encouraged by the continued growth in the value of goods trade between us and the EU shown by today's @ONS trade statistics for March. Striking that goods exports to the EU now exceed average levels from 2020.https://t.co/SAjuz8BNbw
— David Frost (@DavidGHFrost) May 12, 2021
The data is partially clouded by the pandemic, temporary customs issues and the unwinding effect of stockpiling at the end of last year.
Britain’s imports and exports to both the EU and the rest of the world sank as the pandemic hit, and remain solidly below pre-virus levels.
Economists have warned it could take years to measure the impact of the UK’s trading relationship with its nearest neighbour, and there is a chance exports may even unwind further if February and March’s rises reflect delayed orders.
Sanja Raja at Deutsche Bank said: “Big picture, trade flows remain depressed heading into the second quarter with goods exports sitting at a near-decade low. The last time UK export volumes were this low was back in 2010.”
But Mr Jessop was more upbeat, saying: “I suspect that by the end of this year, it will be increasingly hard to argue that Brexit is going to be anywhere near as damaging to UK–EU trade as some people predicting a few years ago.”
The trade data came as growth data showed the economy expanded by a better-than-expected 2.1pc in March, sealing a 1.5pc overall decline across the first quarter.
January’s contraction was revised from 2.2pc to a slightly-worse 2.5pc, while February was upgraded from 0.4pc to 0.7pc.
The three-month decline was far smaller than initially feared – underscoring the UK’s increased economic resilience to lockdowns and building hopes for a strong recovery in the months ahead.
GDP at the end of March was 5.9pc below the levels touched in February 2020 before Covid hit the UK.
The EU’s Spring Forecast predicts the UK will bounce back faster from the economic impact of the coronavirus pandemic than the EU, and says that almost all restrictions could be lifted by the end of June. Brussels forecasters warned that Brexit would slow the UK's recovery, even if it outstrips the EU average. Its reckons the UK economy should return to pre-pandemic levels by the third quarter of 2022.
On post-Brexit trade problems, the report added: “While some of these disruptions will be temporary, as businesses get used to the new rules, UK trade is expected to remain permanently lower over the forecast period as compared to a situation with unchanged EU-UK trading relations."
The UK’s trade deficit narrowed during the first quarter, shrinking by £8.4bn to just £1.4bn, reflecting a sharper decline in imports than exports.
The ONS drew a comparison with the first quarter of 2018, “when trade was not impacted by the coronavirus or the end of the transition period”. Since then, exports are down 13.9pc and imports by 11.7pc.
Trade in services imports was 27.9pc lower in the first quarter than in the same period during 2021, while services exports fell 14pc – drops that can be attributed in large part to the pandemic.
Goods imports from the bloc may come under renewed pressure later in the year when Britain begins to enforce new border checks introduced as part of the Trade and Co-operation Agreement. It has deferred their introduction until Oct 1.
James Smith, an economist at ING, warned there was a “small chunk” of companies still struggling with changes under the agreement – pointing to food and live animal exports, which are still lagging behind late-2020 levels.
“The bottom line is that there will continue to be a slow-burning impact of new trade frictions on the UK economy, even if the immediate teething problems have passed,” he said.
March’s growth figures will boost confidence that the UK is now solidly on the road to recovery after a strong early vaccination campaign allowed the Government to press ahead on schedule with its roadmap for reopening.
Ruth Gregory at Capital Economics said the unexpectedly strong figures, which were driven chiefly by a boost from the construction sector and the reopening of schools, “suggest that the economy could regain its pre-crisis level even sooner”.
“The burst of growth in March shows that the recovery has been gathering momentum more quickly than we had thought and suggests that the risks to our forecast for the economy to return to its February 2020 level by the end of 2021 are to the upside,” she said.
Momentum is set to build in April’s figures, which will reflect the re-opening of non-essential retailers in England and other easing measures.
Analysts at the National Institute of Economic and Social Research expect GDP to rise by 2pc in April, and 4.7pc across the second quarter as a whole. The research body anticipates 5.7pc growth for the year.
It warned: “There are significant upside and downside risks to this, predominantly related to the continuing spread of Covid-19 globally and to the spending of household savings accumulated under lockdown.”
Research commissioned by Investec shows the average UK household now has around £4,353 in excess savings, or £2,309 per adult, following a sharp rise in 2020. How willing consumers are to go out and spend as the economy opens up may be crucial to the pace of recovery.
S&P economists predict UK growth “should outpace that of most of its peers” despite Brexit.
