Trade in UK faces unprecedented challenges. In 2020, the pandemic caused a sharp drop in internal and external demand, travel restrictions and interruptions in border flows coinciding with a time of growing uncertainty around the future commercial relationship with the European Union. The Trade and Cooperation Agreement signed in the last hours of 2020 improved the outlook for 2021 as it allows goods to continue to be traded freely, but non-tariff barriers in the form of customs bureaucracy and regulatory uncertainty are disrupting trade flows, which have fallen to levels not seen since early 2016.
When comparing the data of the last twelve months with that of 2018, the last year before the activation of the key deadlines of the Brexi began to contribute to volatility, a drop of 18.9% in the exchanges with the European Union, compared to 9.1% with the rest of the world. In addition, UK foreign trade data the first quarter of 2021 show a significant novelty: for the first time since there are records, the value of imports from the United Kingdom in Non-EU markets outperformed purchases from the European Union.
UK global trade fell 16% in the first quarter of 2021 compared to the fourth quarter of 2020. Although to a large extent this evolution reflects the pandemic, the impact that can be attributed to Brexit is remarkable. In fact, trade with the European Union fell more sharply (22.4%), with widespread falls in all partner countries. Exchanges with Germany and France fell by 22.4% and 26.1%, respectively. Trade with Ireland was the one that contracted the most (37%). One of the effects of Brexit has been the accumulation of inventories in the fourth quarter of 2020, especially in exports of chemical and pharmaceutical products.
Despite the grace period in the rules of origin, machinery and transport equipment account for almost half of the drop in trade due to administrative costs and regulatory uncertainty
The most recent data from the British Chambers of Commerce estimate that 41% of companies have suffered a sales drop in the first quarter. Exports are historically low and deteriorating. Wholesale and retail companies saw their exports drop 60%. In addition to business volatility, companies face higher expenses from manufacturing supply chain delays.
The decline in British international trade is led by fuels, whose exports fell 37.6% year-on-year. Despite a grace period in rules of origin for many machinery and transport equipment products, which account for a third of UK exports to the European Union, higher administrative costs and regulatory uncertainty led to a 19.8 contraction %, which represents almost half of the decline in trade flows. According to the origin clause, trade in goods is only duty free if at least 50% of the value is created in the UK or the European Union. This is especially relevant in the case of the chemical sector and its large cross-border chains.
Source: Credit and Surety