When the UK trade figures for January 2021 were released – showing a fall in goods exports from the UK to the EU of 42 per cent – supporters of Brexit were swift to point out a number of relevant one-off factors. They were right to do so. Monthly economic figures tend to be volatile – distorted by exceptional items or timing issues. In my time as a junior Treasury minister I would often do a media round following the publication of the monthly government borrowing numbers but was invariably briefed by a clever official called Jim who would point out that – whether the number was unexpectedly high or low – one should not take too much notice of it.
Trade in January was significantly affected by short-term factors. Businesses had been stockpiling in the weeks before the end of the Brexit transition period, the Kent Covid variant was sweeping the UK and January saw a third national lockdown after Boris Johnson had second thoughts about a policy of piling bodies high in their thousands.
All of this was going to have an impact on trade flows. These trade numbers are clearly of relevance in assessing the impact of Brexit but it is reasonable to wait some months before they become hard evidence. The government’s Brexit negotiator, David Frost, however, went further. “Overall freight volumes between the UK and the EU have been back to their normal levels … since the start of February”, he tweeted on 12 March.
A month later, the February numbers were published. Again, we should be cautious about rushing to judgement as to the long-term impact but trade was not back to “normal levels”. EU trade was down by 12 per cent in February 2021 compared to a year earlier. In comparison, there was a fall of just one per cent for non-EU trade.
These numbers did not discourage Wolfgang Munchau, the director of Eurointelligence and the former co-editor of Financial Times Deutschland. “UK exports have made a near-complete recovery,” he proclaimed excitedly in a piece republished by the Spectator. “They were up 46.6 per cent in February after falling by 42 per cent in January.”
Before anyone had the chance to pick up a calculator and work through the sums, Munchau declared that we can be satisfied that these numbers told us “the Brexit scare stories will not come true” and that this supported his contention that the “forecasts of unmitigated gloom have been wrong and deceitful” motivated by “malice or political bias”.
Part of the problem, Munchau stated, was that the Brexit debate was so emotional that “almost everyone’s expectation of the economic effects correlated 100 per cent with political beliefs”. Some of us would argue that our political beliefs were influenced by our economic expectations rather than the other way round.
Has “Project Fear” been discredited? Even if we accept that it is too early to read too much into the 12 per cent fall in trade, the UK’s first few months outside the single market and the customs union can hardly be described as smooth and straightforward for trade with the EU. The agri-food sectors have been most obviously hit – pigs due for export stuck on farms, pig meat rotting in Rotterdam; fishermen tying their boats up in harbour because of disputes over fishing rights; European markets closed to UK shellfish; exports of poultry, dairy and pet food all falling substantially. Nor is it only perishable goods where problems exist; shipping difficulties have added costs to businesses ranging from furniture manufacturers to suppliers of cosmetic ingredients. Another set of problems can be expected when the UK starts to enforce customs and regulatory checks for imports.
As for services, to a very large extent, the Trade and Co-operation Agreement constituted a no-deal outcome for financial services. We have seen activity such as European share trading shift to the EU (with Amsterdam supplanting London as the Europe’s top share-trading hub). Lockdown has meant that very few of us have been able to travel in any event but it quickly became apparent to musicians that European tours now involve onerous visa requirements. Suppliers of professional services can expect to face new difficulties when they seek to resume flying to the EU to meet with clients.
Of course there have been teething problems but not every problem has been temporary and new ones will emerge over time. Even where difficulties have been resolved, this has often been by businesses moving activities from the UK to the EU, sometimes on the advice of the UK government.
None of this should come as a surprise. It was the explicit strategy of the British government to prioritise regulatory autonomy over market access. Reduced market access means reduced trade; reduced trade means lower economic growth than would otherwise be the case. That is why there is an overwhelming consensus among economic forecasters – including the Office for Budget Responsibility and the Bank of England – that Brexit, especially the hard Brexit chosen by the government, will lower our growth rate significantly into the medium term.
For some, this is a price worth paying in order to recover “sovereignty”. But there was every reason for the much-derided experts to believe that Brexit would come at an economic price. Four months in, the experience of too many businesses suggests that the experts were right.
This article appears in the 05 May 2021 issue of the New Statesman, If not now, when?