And finally... here’s our updated news story on the UK trade and GDP figures today:

UK exports of goods to the EU plunged by 40.7% in January during the first month since Brexit and the toughest Covid lockdown since the first wave of the pandemic, contributing to the biggest monthly decline in British trade for more than 20 years.

In the first month since leaving the EU on terms agreed by Boris Johnson’s government, the Office for National Statistics said goods exports to the bloc fell by £5.6bn, while imports fell by 28.8%, or £6.6bn.

Exports of food and live animals to the EU, which includes seafood and fish, were the hardest hit by Brexit, collapsing by 63.6% in January.

This reflected heavier disruption and additional checks for consignments from this sector that prompted furious protests from the fishing industry. However, food and live animals account for only 7% of total UK exports.

After stockpiling and disruption at UK borders in the run-up to the Brexit transition, the decline also came as the economy shrank the most in January since the first wave of the pandemic, with gross domestic product (GDP) falling 2.9% from the level in December.

The ONS said the January performance was the worst since monthly records began in 1997, as a 1.7% rise in non-EU trade, worth £200m, failed to make up for the plunge in cross-border activity with the UK’s biggest trading partner. Overall, global UK exports and imports fell by about a fifth.

Although January’s GDP figure represents the biggest contraction since the first lockdown almost a year ago, analysts had forecast a bigger decline of 4.9%, suggesting that businesses and households adapted better to harsh restrictions than during the first wave of the pandemic, when GDP fell by more than 20% in April 2020.

Experts said the scale of the decline in January trade was unlikely to be permanent because there was evidence companies stockpiled goods before the Brexit deadline, meaning they would not need to send as many shipments as usual in January. The decline was lower than a 68% plunge anticipated by road hauliers, while the ONS said there were signs trade had started to pick up at the end of the month.

Have a lovely weekend. GW

Just in: US consumer sentiment has hit its highest level since the pandemic began, according to the University of Michigan’s latest poll.

Surveys of Consumers chief economist, Richard Curtin, says vaccine optimism and the new $1.9trn stimulus package both lifted optimism among Americans this month.

Consumer sentiment rose in early March to its highest level in a year due to the growing number of vaccinations as well as the widely anticipated passage of Biden’s relief measures.

The gains were widespread across all socioeconomic subgroups and all regions, although the largest monthly gains were concentrated among households in the bottom third of the income distribution as well as those aged 55 or older. Over the past fifty years, the key age group that consistently led recoveries, but was the last age group to indicate a pending recession, was consumers under age 35 (see the featured chart).

Trade body Scotland Food & Drink say today’s “grim” export statistics show the damage Brexit has caused to the country’s food and drink exporters.

Fundamentally important sectors within the food and drink industry for Scotland were among the hardest hit, they point out, with fish and shellfish, Scotland’s largest food export category, down by “a crippling 83%”.

James Withers, CEO of Scotland Food & Drink, said Brexit was “right at the heart” of the collapse in food exports to the EU.

“There is no sugar-coating these statistics, they are grim. We know Covid has reduced demand and there was stockpiling of products before the end of the year, however, right at the heart of this trade collapse is Brexit and the creation of huge, new, non-tariff trade barriers with our biggest export market.

“This simply can’t be talked away as a Covid issue. The crash in UK trade has not been seen in sales to non-EU markets, despite it being a global pandemic. Also, we did not see a fall like this at any point during the first lockdown.

“The financial damage to our seafood industry is particularly stark. A fall of over 80% in what is the UK’s biggest food export has brought a crisis to a sector reeling from the worst trading year in memory. You can’t stockpile fresh fish and shellfish, so that has not been a factor at all in these figures.

Withers also fears that it will be hard to improve the position for domestic exporters, now that the UK has delayed its own import checks, making it easier to bring goods into the country.

“I do expect to see an uplift in the February and March figures, but the trade barriers now created are real and costly. The so-called teething problems are still with us and have cost the industry tens of millions so far. This has to act as a catalyst to open negotiations with the EU to recognise aligned food standards and reduce the red tape burden. Without that, these trade figures will never recover to anything like the levels before. EU supply chains will permanently restructure, and UK businesses and jobs will lose out.

“Of course, getting the EU to the table may now be much more difficult given that none of our EU counterparts will feel any real border friction until the end of the year. They will enjoy a grace period on border checks so wrongly denied to UK exporters. The Brexit dividend thus far has turned out to be a huge competitive disadvantage for Scottish food exporters.”

Here’s Dominic Goudie, head of international trade at the Food and Drink Federation, on the reasons behind the slump in UK exports to the EU:

“A sharp fall in our exports to the EU in January is hugely disappointing but comes as little surprise given the challenges our industry faces. The closure of hospitality across Europe already had significant impacts on our exports in 2020, and this has been compounded by the late notification of the trade agreement just a week before entry into force, with significant new barriers to trade impeding movements of goods. Many small businesses are struggling to move any goods into the EU because of the collapse of movements via groupage shipments.

“Businesses are facing wildly inconsistent demands and applications of rules at different EU ports that are blocking exports. Having taken a sensible and pragmatic step to ensure imports continue to flow, Government must now accept that exporters are facing serious problems that should be addressed as a priority. They need to work constructively with the EU to address barriers to trade by improving the implementation of the trade agreement and streamlining processes, otherwise EU exporters will face the same difficulties when the full UK border enters into force in 2022.”

Burberry has upgraded its full-year profit forecast after a rebound in sales since December, driven by a strong recovery in demand for its luxury goods in China and South Korea.

In a rare piece of positive news from a fashion retail sector battered by the coronavirus crisis, Burberry said on Friday that like-for-like store retail sales would be up by nearly a third year on year in the first three months of 2021.

The unscheduled trading update cheered investors, with Burberry’s share price up about 7% at lunchtime on Friday, its highest level since before the pandemic.

The company said:

“Since December, we have continued to see a strong rebound and now expect revenue and adjusted operating profit to be ahead of consensus expectations,”

Burberry, known for its trench coats and distinctive patterned goods, said the performance upgrade is expected to lessen the overall decline in full-year revenues to 10%-11%. Analysts had forecast a fall of about 13%, according to Burberry.

The company, which has used stars such as the footballer Marcus Rashford to broaden the appeal of its collections to a younger market, said in January it had also seen strong demand from Chinese and Korean shoppers in the closing months of 2020.

While sales in Europe, the Middle East and Africa were down about 37%, said Burberry, on the back of store closures and fewer tourists, sales across the Asia Pacific market were up 11%. It again singled out China and South Korea as driving the recovery in sales.

Here’s my colleague Phillip Inman’s analysis of today’s trade data:

While most UK consumers found a way to weather the third lockdown, manufacturers were not so lucky after the government’s last-minute deal with the EU plunged British ports into chaos and sent trade plummeting by 40%.

Without a smooth route across the Channel, the manufacturing sector was always going to struggle. That trade dropped by the most in more than 20 years illustrates how dependent on trade the UK is and has always been.

As an act of self-sabotage, Boris Johnson’s willingness to negotiate the thinnest of Brexit deals was always going to rank alongside the major economic debacles of the past century. Up and down the country, businesses report edging towards the brink of collapse as hold-ups at the border prevent their goods making it to customers in the EU.

Manufacturers, many of which are basically assembly points for components sourced from across the world, have struggled to keep production lines moving. The Office for National Statistics said manufacturing output contracted by 2.3% month on month in January, with output falling in nine out of 13 subsectors.

Worst affected was the car industry, which has already taken a battering over the past year and been denied almost any meaningful investment for four years while the mostly foreign-owned industry waited to see what life outside the EU would be like....

The Chancellor of the Exchequer, Rishi Sunak, says the 2.9% drop in UK GDP in January shows the economic impact of Covid-19:

“Today’s figures highlight the impact the pandemic continued to have on our economy at the start of the year as we tackled the new variant of the virus- and I know this is a cause of concern for many.

“But we also have reasons to be hopeful- we have set out a clear roadmap out of the pandemic, the NHS has vaccinated over 23 million people and my Budget last week set out our three part plan to protect the jobs and livelihoods of the British people.

“We will continue to protect jobs and businesses as long as this crisis lasts, we will be honest with people and put the public finances on a more sustainable path, and we will begin the work of building our future economy.”

But his Labour opposite number, shadow chancellor Anneliese Dodds, say that the Budget will undermine the recovery.

“Rather than securing the recovery, Rishi Sunak’s budget last week risked weakening it through a combination of pay cuts and tax rises, and a looming cut to social security just as unemployment is set to spike.

“The Chancellor’s mask has slipped. He’s making irresponsible choices now and has no long-term plan for the future. The people of Britain deserve better.”

The 40% slump in UK exports to the European Union in January is an ‘ominous’ sign of the damage caused by the Brexit deal, says Suren Thiru, head of economics at the British Chambers of Commerce.

“While changes in data collection limit historic comparisons, the significant slump in UK exports of goods to the EU, particularly compared to non-EU trade, provides an ominous indication of the damage being done to post-Brexit trade with the EU by the current border disruption.

“Continued coronavirus restrictions and the unwinding of Brexit stockpiling also added to downward pressure on trade between the UK and EU in January.

“The practical difficulties faced by businesses on the ground go well beyond just teething problems and with disruption to UK-EU trade flows persisting, trade is likely to be a drag on UK economic growth in the first quarter of 2021.

Yael Selfin, chief economist at KPMG UK, calls the slump in UK exports to the EU ‘staggering’ - caused by problems at the border as well as stockpiling, and the pandemic.

The manufacturing sector, and in particular the automotive industry, suffered from initial border glitches, while the transport sector was also affected.

“January saw a staggering 40.7% fall in exports to the EU as the Brexit related disruption coincided with restrictions caused by new COVID variants. In comparison, trade with non-EU countries grew by 1.7% pointing to Brexit as the likely culprit, as intense stockpiling in December 2020 brought some trade flows ahead of the Brexit deadline.

“Latest data points at stronger trade flows with the EU since February and we expect production to gradually recover. Although the longer term impact on supply chains will depend on how attractive the UK remains and the competition from other locations within the EU.

Danni Hewson, financial analyst at AJ Bell, says the trade figures will worry the City:

Some of this decline can be put down to lockdown, stockpiling and teething troubles. But it’s clear that the Brexit transition has been far from smooth and markets will be paying close attention to whether current frictions mean long-term changes.”

ING developed markets economist James Smith points out that some UK firms are still struggling to get to grips with Brexit:

Among other things, the fall will be linked to a) stockpiling in late 2020, allowing businesses to avoid the need to trade in early January, and b) some ripple effects from the Covid-related closure of the ports back in December.

Still, there can be little doubt that some of this damage is down to disruption. Some things have probably improved in the weeks since, given that, for example, major haulage firms have largely resumed deliveries between the UK and the continent (some had paused given the high percentage of wrongly filled-in paperwork).

But there are also signs that firms are still struggling. Recent ONS business surveys show that there is still a small chunk of manufacturers who haven’t been able to export recently, while many are reporting fewer shipments than usual.

Unsurprisingly input prices have also been rising more than normal, though some of this will be down to international shipping issues. What’s also telling is that a small - but clearly rising - number of firms in affected sectors are saying they are making changes to their supply chains.

Exports of food and live animals from UK farms and the fishing industry to the EU tumbled by 63% in January (or £700m).

That’s another clear sign of Brexit disruption, following many warnings from the seafood sector that red tape at the border is disrupting exports of their fresh goods to the EU.

The ONS says:

This is potentially because of stricter checks and certifications implemented by the EU at the end of the transition period. The Scottish Seafood Association says exports to the EU are being hit by “red tape” delays between Scotland and France.

The consignment sign off is reportedly taking six times longer, and previously overnight transit of goods to France is reportedly now taking three days.

In the first month since Brexit on terms agreed by Boris Johnson’s government, official trade figures showed exports of goods to the EU plunged by 40.7%, or £5.6bn, my colleague Richard Partington writes.

The slump in trade with the EU, excluding gold and other precious metals, is a reflection of disruption at UK borders.

January saw the biggest monthly fall in imports and exports since Office for National Statistics records on trade began in 1997.

ONS figures published on Friday also revealed that Britain’s economy shrank in January by the most since the first wave of the Covid pandemic while tougher lockdown measures were in place to contain the spread of the virus....

Trade between the UK and the European Union has plunged in January, according to the latest data.

According to the Office for National Statistics, UK exports of goods to the EU slumped by 40.7% in January, a truly precipitous decline

Imports from the EU into the UK also tumbled, falling by 28.8% in the first month of the new trade relationship, driven by a drop in imports of cars and pharmaceuticals.

As a result, UK goods imports and exports fell at the largest monthly rate since records began in 1997.

The ONS reports that:

• Exports of goods, excluding non-monetary gold and other precious metals, fell by £5.3 billion (19.3%) in January 2021, because of a £5.6 billion (40.7%) fall in exports to the EU.
  
  
• Imports of goods, excluding non-monetary gold and other precious metals, fell by £8.9 billion (21.6%) in January 2021, driven by a £6.6 billion (28.8%) fall in imports from the EU.
  
  
• Falling imports of goods, excluding non-monetary gold and other precious metals, were largely seen in machinery and transport equipment, and chemicals from the EU in January 2021, particularly in imports of cars and medicinal and pharmaceutical products.

The ONS says there are several potential contributing factors to this slump in trade - including Brexit disruption....

External evidence suggests some of the slower trade for goods in early January 2021 could be attributable to disruption caused by the end of the transition period.

.... the impact of stockpiling ahead of the Brexit deadline...

November and December 2020 saw increasing imports and exports of goods, particularly in machinery and transport equipment and chemicals.

These increases were consistent with potential stockpiling of goods from the EU in preparation for the end of the EU exit transition period. UK goods imports from the EU also peaked in the weeks approaching previous Brexit deadlines in March and October 2019.

...and also the current lockdown.

One caveat: The way the UK collects export data has changed since Brexit (a ONS research note explains all here), so it could take longer to record some UK goods shipped to the EU.

The ONS says this is ‘unlikely’ to change the trend in today’s data, though:

Some of the EU export data will become available slightly more slowly under the new system. There will be small difference in January export estimates although this is unlikely to influence the trend of the movements in January.

This chart shows how the UK economy shrank in January, although nowhere near as badly as in the April lockdown:

Here’s the breakdown by sector, showing how services (around three-quarters of the economy) took the must bruising hit:

The UK economy shrank 2.9% in January as “government restrictions reduced economic activity”, says the ONS.

It was a month in which non-essential shops were closed, the nation’s office workers largely continued to work from home, millions of children were home-schooled, and hospitality venues were shuttered again.

The services sector acted as the main drag on growth in January, with services activity shrinking by 3.5% during the month.

The ONS says:

• UK gross domestic product (GDP) is estimated to have fallen by 2.9% in January 2021, as government restrictions reduced economic activity.
• Falls in consumer-facing services industries and education drove a contraction of 3.5% in the services sector in January 2021.

Breaking: The UK economy shrank by 2.9% in January, as the latest Covid-19 lockdown hit activity.

That leaves the UK economy 9% smaller than its pre-pandemic peak, the Office for National Statistics says.

That’s better than the City economists had forecast, though.

Details and reaction to follow...

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After a record slump in 2020, we’re about to discover how the UK economy fared at the start of 2021.
January was a tough month economically, with England entering its third national lockdown and tight restrictions in other parts of the country too. Businesses also had to get to grips with the UK-EU free trade deal, agreed just before Christmas.
Economists predict that the UK economy shrank by almost 5% during January, having returned to growth in December. A sharp decline, but not as severe as the 20% plunge suffered back in April.

Most of the damage was probably suffered by services sector companies, with industry and construction managing to keep operating despite the lockdowns.
We also get new UK trade data, which is expected to show a decline in imports and exports in January following a burst of stockpiling late last year. Germany reported earlier this week that its trade with the UK plummeted in January, with imports from Britain more than halving.

Plus, there’s new factory production data from the eurozone and a healthcheck on US consumer confidence to round off the week...

The agenda

• 7am GMT: UK GDP report for January
• 7am GMT: UK trade figures for January
• 10am GMT: Eurozone industrial production for January
• 2pm GMT: NIESR’s monthly UK GDP tracker for February
• 3pm GMT: University of Michigan survey of US consumer confidence