Tomorrow (Tuesday 13 April) the ONS will release trade figures for February, which will provide the next significant update on how Brexit has affected Britain’s ability to produce and sell goods to the world. While there have been some worrying signs – Germany’s imports from the UK in February dropped 26.9 per cent on the previous year – and some sectors, especially shellfish, have been all but eradicated, there are also signs that in some areas at least, things are picking up. Data from French customs shows trade between the UK and France rising almost to pre-Covid levels.
Have British businesses ridden the early turbulence, as Michael Gove suggested? Is it time to breathe a sigh of relief and begin chewing optimistically on a Bullseye Baggie? Sadly not.
The problem with trade figures is that they tell us what businesses have been able to achieve but not what it has cost them to do it. Surveys of businesses themselves reveal a more concerning picture of long-term economic damage.
The Quarterly Economic Survey released this morning by the British Chambers of Commerce (BCC) shows that 41 per cent of companies – out of 6,103 surveyed – have reported decreased sales in the first quarter of the year. Exports of services, manufacturing, production, catering and hospitality have all fallen, with retail and wholesale firms reporting a 60 per cent drop in exports. The BCC warned that “export sales are at some of the lowest levels ever recorded”, and that the export situation “is continuing to deteriorate”.
This echoes the three-month picture from individual sectors, such as the steel industry, which has reported a 38 per cent drop in exports in the first three months of 2021 against the 2015-17 average, and from the hundreds of small businesses that say they have halted exports to the EU due to the increased work and expense.
A survey of British businesses that export to the Netherlands – the UK’s second biggest market within the EU, after Germany – found that in the three months since the end of the Brexit transition period, 63 per cent of businesses had found exporting harder: it is more work, at a higher cost, resulting in a lower margin. For some markets and sectors, the volume of trade itself may not yet reflect this, because businesses have been doing everything they can to remain in business.
Businesses do not have the luxury of looking at the effects of costly bureaucracy, reduced speed to market, more difficult recruitment and, despite what you might have heard, tariffs (subject to the deal’s bewildering provisions on rules of origin) and deciding it’s not worth the fuss. What the BCC’s survey shows is that firms are already making savings elsewhere, reducing their spending on training and other investments in the face of sharply reduced cashflow.
In the long term, an environment in which businesses are less able to invest in equipment, train or recruit people, or compete with international rivals on price will have a caustic effect. The overnight disaster has not happened, but what has materialised is a steady stream of businesses – especially SMEs – borrowing more, investing less, moving abroad or going under.
“The difficulties exporters are facing are not just ‘teething problems’”, said Hannah Essex, the co-executive director of the BCC, in a statement accompanying the survey today. ”They are structural issues that, if they continue to go unaddressed, could lead to long-term, potentially irreversible weakness in the UK export sector.”
Some large investors are already planning around this. Despite the pound’s strong performance over the past three months, long positions on the pound – that’s investors buying sterling in the expectation that its value will rise against other currencies – fell to a nine-week low this morning. The US investment bank JP Morgan, which is betting that the pound will fall against the dollar, says the “structural drag” created by Brexit will soon outweigh the short-term optimism created by the success of the UK’s vaccine scheme.
If tomorrow’s statistics look promising, they will doubtless be claimed by Boris Johnson’s government as a victory for hope over Project Fear. But the real evidence of Brexit’s impact on business will not appear this week or next month, when the first-quarter figures are in, but once the trends that have begun to take shape have had years to work on our economy.