Readers might by this point be becoming bored of hearing about misconceptions about trade flows. Unfortunately, news – unlike trade, allegedly – is flowing all too freely. News outlets have focused on the publication of German trade figures, which show a year-on-year decrease January to January of 56% in British exports to Germany, and a decline of 29% in imports. And although Covid disruption has been cited, Brexit restrictions have fingered by many as a significant factor.
Certainly, isolated sectors have been hard-hit – fish and wider food exports in particular – by EU restrictions. Trade with the Republic of Ireland has also tanked, perhaps in connection with difficulties faced by UK hauliers wanting to carry goods for both Northern Ireland and the Republic. As we’ve argued before, until the government imposes its own checks (rather than further suspending them) and toughens up its stance on the Protocol there will be little or no incentive for the EU to compromise in any of these areas.
There are reasons to be cautious, however, about the more general picture of decline. To start with, disruptions from COVID and the frontloading of imports before January 1st played a substantial part in January’s lull. Another overlooked element is the strength of the pound – which rose from a low of £1.08 to the Euro mid-December to £1.13 by the end of January, hitting a year-long high of £1.17 by the middle of this month. While reflecting investor optimism about the vaccine rollout and aiding consumer purchasing power, this rise has a negative effect on exporters by increasing their prices.
More generally, the UK’s January trade data were released on Friday, and generally suggest a recovery toward previous levels by the beginning of February. Headlines were pessimistic in certain press quarters, reflecting the likely temporary fall in January goods trade with the EU. Yet the general trends are encouraging: a smaller GDP contraction than expected, the UK’s exports of services barely moving, and exports to non-EU countries increasing by 10%.