UK trade with the EU has declined at twice the rate as trade with the rest of the world, reports new economic research from trade credit insurer Atradius.
While the UK’s global trade levels have dropped at historically high rates over the past year, driven primarily by the Covid-19 pandemic, the new Atradius report suggests the potential impact of Brexit may have been masked.
The economic research paper, entitled Brexit disrupts UK-EU trade, reports UK international trade collapsed 14.3% year on year in March 2021 with a near-equal contribution of EU and non-EU trade. Exports performed the weakest, dropping 17.4% year on year compared to an 11.8% drop in imports. However, comparing trade levels from the past 12 months to those in 2018 shows the longer-term difference in trade levels is more protracted.
Over this period, trade between the UK and non-EU countries fell 9.1% with UK-EU trade down 18.9%. Atradius reports that while demand in the last year has been severely affected by the pandemic, the higher magnitude of long-term UK-EU trade contraction suggests Brexit uncertainty has played a significant role.
The impact of uncertainty can be seen in the slowdown of growth during 2018 followed by a largely flat year in 2019. However, trade gains between the UK and EU made since 2016 were all but wiped out in 2020 in the run-up to the end of the transition period with uncertainly playing a larger role in reducing trade than the changing trade regime itself.
In Q1 2021, total trade growth began to turn up from a low of -17.1% in January as base effects came into play and confidence improved. However, this is the first quarter on record that the value of imports from outside the EU surpassed those from within the EU. Non-EU imports now total 51.1% of the UK’s total imports following a decline of UK-EU imports of five percentage points since early 2018. During this time, UK-EU exports declined four percentage points to 45.6%.
James Burgess, head of UK commercial for export expert Atradius, said, “UK trade is facing an unprecedented mix of challenges with the global health crisis and associated lockdowns causing demand at home and abroad to plummet. This came at a time of rising uncertainty surrounding the future trade relationship with the EU. The current iteration of the trade agreement has offered optimism for the 2021 outlook although there are still barriers to overcome in the form of customs bureaucracy and regulatory uncertainty. We can clearly see the impact of uncertainty on business confidence and resulting trade levels.
“However, what is certain is that the global trade environment has changed – and will continue to do so. Businesses must future-proof their operations by proactively monitoring for new, ever-changing risks with an agile and robust response. Despite the ensuing uncertainty, opportunities for growth are arising across global markets. To seize these, businesses must equip themselves with a comprehensive trade strategy that protects them from the risks no matter what the future holds.”