Post-Brexit disruption sees Britain's trade with EU drop off a cliff

The UK economy shrank by almost 3 per cent in January while trade with the European Union dropped off a cliff in the wake of Brexit, official figures have revealed.

Gross domestic product (GDP) fell by 2.9 per cent month on month in January, reversing a rise of 1.2 per cent between November and December, according to the Office for National Statistics (ONS). GDP remained 9 per cent below its pre-pandemic levels in January.

The fall came at a time when the economy had been placed under some of the toughest restrictions since coronavirus first hit a year ago.

However, businesses have adapted better to changing circumstances, the data suggests, with the 2.9 per cent decline lower than the 4.9 per cent economists had predicted.

Shipping containers stacked in the port of Southampton, as the UK leaves the single market and customs union and the Brexit transition period comes to an end.

Separate ONS data showed that exports of UK goods to the EU slumped by more than two-fifths in January as the Brexit transition period came to an end.

The end of the transition period coincided with the spread of a new strain of coronavirus in the UK, causing lorry drivers to need tests to cross the border at the English Channel.

Another lockdown was also imposed at the beginning of the month. Since then, other measures have shown that trade levels have in part recovered.

Danni Hewson, financial analyst at AJ Bell, said the GDP figures were “resilient” given the economic backdrop and demonstrated how businesses have adapted to the challenges.

She added: “Despite the vaccine roll-out there are still lingering concerns that another lockdown may be required later this year. The economy’s performance in January will bolster optimism that even a worst-case scenario won’t be as bad for business as previously thought.

“But the numbers that will be of most concern have to do with trade. 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.”

The ONS data showed that overall exports from the UK fell by £5.6 billion – 19.3 per cent. It was driven by a 40.7 per cent plunge in exports of goods to the EU.

Imports also fell, by 21.6 per cent, while imports from the EU dropped 28 per cent, the figures revealed.

Richard Hunter, head of markets at Interactive Investor, said: “Brexit came into effect in January and the hit to the UK’s import and export figures was stark.

“However, it is too early for a definitive read of the Brexit effect, with some evidence of stockpiling ahead of the deadline and signs of some recovery towards the end of the month indicating that the picture could be rather more positive after the initial dust has settled.”

The British Chambers of Commerce’s head of economics, Suren Thiru, added: “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.”

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