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.
Agriculture and fishing fared even worse, suffering huge falls in exports. The 60% slump in food and live animal exports is a startling figure, especially when the UK is so reliant on food as a source of income. It is, after all, the largest segment of the manufacturing industry, dwarfing cars, aerospace and telecoms.
The government will rely on the more buoyant services sector to show the UK is doing better than expected after a year of Covid. There was a consensus among City economists polled by Reuters that GDP growth would fall by 4.9% in January but it slid by only 2.9% after consumer spending proved more resilient than in previous lockdowns.
Next week the Bank of England will probably react by upgrading its forecast for growth for 2021, citing the smaller dip in activity during January as a signal of a shallower fall in first-quarter GDP.
Ministers will also argue that the trade figures were skewed by firms stockpiling in November and December in anticipation of a much-feared no-deal Brexit. That trend no doubt accounts for some of the fall in January.
However, looking out over longer time horizons, a 16.7% slump in exports in 2020 is likely to be offset by not much more than a 7% rise 2021. With many economists forecasting imports will rise at an even faster rate than exports as the economy is released from lockdown restrictions, the trade balance will deteriorate yet again.
Overall, it is clear the impact of Brexit will be felt for years to come in the trade sector. Worse, trade could prove to be a drag on the economy’s overall growth, as it was so often from 2016 onwards, rather than the high-octane propellent the government said it was going to be.
