We argued last month that the sharp reported decline in UK-EU trade in January was likely to be at least partly reversed in the following months, reflecting as it did a variety of short-term factors including temporary border disruptions, the unwinding of stockbuilding at the end of 2020 and some erratic movements in individual industries. To these factors we may now add measurement problems, as it appears that recorded UK export data for some UK industries (notably smoked salmon) appear to be greatly at odds with figures collated by the industries themselves.
Official UK trade data for February suggests we were correct. In constant prices, UK exports to the EU rose 53% in February versus January, while UK imports from the EU rose 7% (see Chart 1). Does this amount to a ‘return to normal’? Much depends on where you think trade levels might have been without the UK exiting the customs union and single market at the start of this year. If we compare February UK exports to the EU to the average level in the second half of 2020, they are about 9% lower, so this doesn’t look like a full recovery.
But as we noted when January’s data was released, UK trade levels with the EU in late 2020 were inflated by heavy stockpiling ahead of the January 1 deadline for the UK to exit the EU’s trade systems (with the same pattern visible before the abortive deadline of early 2019). A better base for comparison might be the four months in 2020 before this stockpiling began. If we compare UK exports to the EU in February to their pre-stockpiling average, the gap is very small – only £0.3 billion or 3% (see Chart 2).
Moreover, it looks like things improved even further in March. The French customs authorities have produced estimates of trade with the UK for March that suggest both exports and imports continued to recover, with imports from the UK rebounding to pre-pandemic levels (see Chart 3). If we use the French estimates to extrapolate UK exports to the EU as a whole for March, they would not only rise well above the average level seen in the second half of 2020, but would be up 20% on the same month a year ago and exceed the levels seen at the start of 2020 before the coronavirus crisis struck (see Chart 4). This would indeed look a lot like a ‘return to normal’.
There are some additional interesting details from the UK February trade data. If we look at trade with individual EU countries, imports from EU countries in February remained 10-20% down on average levels in the second half of 2020. Notably, imports from Ireland – which seemed to hold up quite well in January – were down 26%. This, it should be remembered, has occurred even though the UK has delayed introducing full border checks and controls on EU imports. Despite this, UK businesses already seem to be looking for other sources of supply.
On the export side, the picture is more varied. UK exports to France and Italy rebounded much more than to Germany and Ireland in February. But most striking is the relative strength of UK exports to the Netherlands and Belgium. This may be partly erratic but could also signal some shift of UK trade away from channel ports to ports in the low countries, perhaps in search of smoother border processes.
At the individual industry level, there are again some big variations in UK export performance. February exports of other transport equipment to the EU (including aerospace) were over 20% above the average level of the second half of 2020. This partly reflects very low sales during 2020 due to the coronavirus pandemic. Machinery, motor vehicles and metal products exports to the EU were also above average levels of the second half of 2020 in February. Machinery exports were back at pre-pandemic levels (see Chart 6).
Less positively, oil exports to the EU were some 50% down on the average levels of the second half of 2020. This looks erratic, as it does not seem to match available output data. With oil still a large (if declining) sector, this weakness is a significant drag on aggregate exports. Food exports to the EU also remained well below average levels of the second half of 2020, by around a quarter. However, February did see food exports to the EU rise around 70% from January and fish exports almost triple from January levels. These sectors are still struggling with new trade barriers – not surprisingly given how protectionist the EU is towards food imports – but the latest data are a long way from the total wipe-out that January figures seemed to show.
All in all, the February UK trade data and the March estimates from France look very promising. Certainly, some of the press coverage of January’s data, which gleefully claimed that pre-Brexit catastrophising about trade had been vindicated, now looks embarrassingly wide of the mark. There are clearly going to be ongoing problems for some sectors such as food, but the emerging data don’t support previous claims (including by the UK Treasury) of UK-EU trade dropping by 40% or more due to the UK exiting the customs union and single market.