Britain is missing out on the global trade upswing due to its departure from the European Union (EU), new research has shown.
Although the UK trade deficit came in at just £2.7bn ($3.8bn) in the first quarter of the year, much smaller than its £6.6bn average in the 2010s, exports to the EU have fallen sharply.
Pantheon Macro, which conducted the study, said the deficit highlighted the fact that UK exporters have lost market share, rather than the lacklustre EU economy.
The value of goods exports to the EU fell to £32.2bn in Q1, down from £39.9bn in the last three months of the year. In contrast, exports to non-EU countries rose to £41.3bn from £40.9bn over the period.
According to Eurostat, the value of imports from the UK in February was 22.5% below its 2020 average, far exceeding the 3.4% shortfall reported by the ONS.
By March, the value of goods exports to the continent had returned to £12.7bn, slightly above last year's £12.1bn average.
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However, exports across the globe are booming, and most other countries are exporting more successfully to Europe than Britain. Eurozone imports from countries that are members of the EU, but not the Eurozone, were 13% above their 2020 average in February.
On the same basis, imports from countries under the European Free Trade Association (EFTA) were up 6%.
“Given the similarity between these countries and Britain, it's reasonable to assume that UK exports would have fared similarly well, absent Brexit,” Pantheon Macro said.
Exports account for around 30% of UK GDP.
It added: “The main driver of the narrowing of the trade deficit, was a huge fall in imports, from both EU and non-EU countries. This appears to have been linked to the 11.9% quarter-on-quarter decline in business investment in Q1, which was spurred by the lockdown.”
Towards the end of last year, many British companies also stockpiled goods from the bloc amid concerns of a no-deal Brexit as London continued to work towards an agreement with Brussels.
As some firms are still sitting on stockpiled goods, imports are likely to revert to average during the second quarter of the year.
Pantheon Macro added that imports from the UK were already falling in 2019, before the outbreak of COVID-19, despite the boost to competitiveness from sterling’s weakness.
“Businesses in the EU already had begun to re-jig supply chains in anticipation of new trade frictions,” it said.
The cost of complying with additional customs checks also plays a part, and rules of origin will continue to make it more attractive for multinationals to relocate production to the EU from the UK.
“We remain particularly concerned that the eventual recovery in services exports, once COVID-19 restrictions on international travel have been lifted, will be constrained by new trade rules.”
When travel is permitted, Brits may soon have to apply for and pay for a visa if they wish to work and provide services in a member state. In addition, many member states may not recognise British professional qualifications.
Financial services firms have also lost the ability to service clients in the EU from the City of London.
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