Richard North, 13/03/2021  
 


ONS trade statistics for January are giving the media more easy meat on Brexit, allowing the Guardian to run the headline: "Exports to EU plunge by 40% in first month since Brexit", arguing that the "massive drop" in UK trade "shows extent of Boris Johnson's Brexit own goal".

However, we can go to the ONS for the details, where there is a neat enough summary. There, we are told that exports of goods, excluding non-monetary gold and other precious metals, fell by £5.3 billion (19.3 percent) in January 2021, because of a £5.6 billion (40.7 percent) fall in exports to the EU.

Imports of goods (with the same exclusion of non-monetary gold and other precious metals), fell by £8.9 billion (21.6 percent) in January 2021, driven by a £6.6 billion (28.8 percent) fall in imports from the EU.

Falling imports of goods, the ONS says, were largely seen in machinery and transport equipment, and chemicals from the EU in January 2021, particularly in imports of cars and medicinal and pharmaceutical products. The monthly falls in goods imports and exports were the largest monthly falls since records began in January 1997.

As to non-EU countries, imports of goods fell by £2.4 billion (12.7 percent), while exports increased by £0.2 billion (1.7 percent). The total trade deficit for January 2021 narrowed by £3.7 billion to £1.9 billion; imports decreased by £9.2 billion (17.6 percent) and exports decreased by £5.5 billion (11.8 percent).

Helpfully, as well as these data, the ONS also offers its view on the potential factors contributing to the falls experienced, with the warning that monthly data are erratic. Small movements in these series should be treated with caution, it thus cautions.

Nevertheless, it acknowledges that the data in its bulletin are the first to include trade after the end on the transition period, but it also notes that the UK went into another national lockdown at the beginning of January 2021.

Additionally, it notes, November and December 2020 saw increasing imports and exports of goods, particularly in machinery and transport equipment and chemicals. These increases, it says, were consistent with potential stockpiling of goods from the EU in preparation for the transition period end.

All of these are potential contributing factors to the fall in January trade in goods. Together with "external evidence", the ONS suggests that some of the slower trade for goods in early January 2021 could be attributable to disruption caused by the end of the transition period.

In addition, it warns that we also need to consider the stronger November and December stockpiling trade figures associated with some commodities and therefore may expect to see an unwinding of stocks from these previous months.

Despite the slow start for trade in January 2021, data from the Business insights and impact on the UK economy suggests that importing and exporting began to increase towards the end of January.

The proportion of businesses reporting that they were unable to export decreased by 5.4 percentage points between the reporting periods 11 January to 24 January and 25 January to 2 February. Similarly, the proportion of businesses reporting they were unable to import decreased by 3.0 percentage points between the same reporting periods.

Offering yet more detail, ONS tells us that falling imports of goods were largely seen in machinery and transport equipment, and chemicals from the EU in January 2021. Total imports of machinery and transport equipment fell by £3.3 billion (21.9 percent) in January 2021, driven by a £2.6 billion (30.0 percent) fall in imports from the EU.

The falls in imports of machinery and transport equipment from the EU were driven by a £1.0 billion (39.0 percent) fall in imports of cars. The decrease in imports of cars is attributed to a multiplicity of possible factors. These include disruption in the lead up to the end of the UK-EU transition period, stockpiling and the ongoing impact of the pandemic. But the ONS also suggests that global supply chain issues might have had an influence.

Imports and exports of chemicals fell by £1.7 billion (30.1 percent) and £1.2 billion (25.2 percent) respectively. Once again, the largest falls in imports and exports were observed in products traded with EU countries, particularly in medicinal and pharmaceutical.

EU trade in these sectors reduced by £1.1 billion (57.3 percent) and £0.6 billion (62.6 percent). Imports from the Netherlands, Germany and Belgium accounted for 76.2 percent of the UK's total decrease in imports of chemicals.

The ONS thinks that the decrease in exports of pharmaceutical products to EU countries is likely a consequence of stockpiling in preparation for the end of the EU transition period by the UK's largest medicinal and pharmaceutical product export partners.

Most notably, it adds, UK exports of medicinal and pharmaceutical products to Ireland increased by 224 percent in the three months to December 2020 and increased by 283 percent compared with the same period in 2019. This coupled with reported difficulties for EU countries accessing the primarily UK produced AstraZeneca vaccine may have led to this reduction in exports to the EU.

In contrast to the falling exports to the EU, exports of medicines and pharmaceutical products to non-EU countries increased by £0.3 billion in January 2021. A large proportion of this is represented by increasing exports to China and Japan in this period.

This increase, we are told, is potentially an early effect of the UK-Singapore trade agreement, which came into effect on 1 January 2021. This trade agreement provides lower non-tariff barriers for the trade of pharmaceuticals and medical devices; it may serve to facilitate increasing trade with the UK's largest trading partners in the region, China and Japan.

Imports of miscellaneous manufactures, which includes clothing, fell by £1.9 billion (28.3 percent) in January 2021. Imports of clothing from non-EU countries fell by £0.2 billion (34.8 percent) to £0.8 billion: the same value as seen at the beginning of the coronavirus (COVID-19) pandemic in April 2020.

This reduction is because of a drop in imports of clothing from China in January 2021, which is likely due to a drop in UK retail sales of clothing because of the national lockdown in place in response to rising COVID-19 cases, coupled with stockpiling of clothing from towards the end of 2020.

This, ONS asserts, is supported by the Business Impact of Coronavirus Survey (BICS) data, which show how in early October 14.4 percent of wholesale and retail trade businesses had stock levels higher than normal, increasing to 22.1 percent by mid-December 2020.

As for exports of food and live animals to the EU, which includes seafood and fish, these decreased by £0.7 billion (63.6 percent). The ONS concedes that this is potentially because of stricter checks and certifications implemented by the EU at the end of the transition period. However, this sector accounts for only seven of total UK exports so, despite the effect on individual exporters, the overall impact on the total UK figures is slight.

The ONS also include detail on trade in services, which are surprisingly stable. The trade in services surplus widened by £0.1 billion to £8.2 billion in the month of January. Imports fell £0.3 billion (2.4 percent) to £10.7 billion and exports fell £0.2 billion (0.9%) to £18.9 billion.

For both exports and imports, the main accounts that are decreasing are travel, other business services and transport. The falls are attributable largely to Covid.

Overall, as might be expected, we have mixed picture, with the ONS cautioning about over-interpretation. Despite that, David Frost is untroubled by doubt.

He believes the 40 percent drop in exports to the EU was caused by a "unique" set of factors that are "starting to unwind". Furthermore, he claims that the latest information indicates that overall freight volumes between the UK and the EU have been back to their normal levels for over a month now, i.e., since the start of February.

For what it's worth, I take the view that it is far too early to draw any firm conclusions. The data are far too "noisy" and many of the effects due to Brexit many take some time to appear, especially when Covid continues to be a confounding factor.

Perhaps, by this time next year, we might be getting a clearer idea of what is going on, but three years or more may be needed to establish a reliable trend.

Also published on Turbulent Times.






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