Covid, Brexit and UK-EU trade

With the UK trade data for March just released, this is a good time to ask how UK trade with the EU has evolved during the Covid pandemic and, in particular, after the end of the transition period following Brexit. The analysis focuses on trade in goods since it is free from tariffs and there is no agreement yet regarding trade in services.

UK – EU trade

The figures below show seasonally adjusted data on UK exports to, and imports from, the EU in volume terms (2018 prices).¹ Since trade flows fluctuate sharply from month to month, the figures also show the middle half of the observations – the interquartile range – for the reference period 2011-2019.² Observations below that range indicate less trade than suggested by the historical record.

While exports in January and February 2020 were well within the interquartile range, the start of the Covid pandemic in March led to a sharp fall in exports. Exports remained below the interquartile range in the following months but returned to the range in October – December.

With the transition period ending on December 31, trade was likely boosted in the fourth quarter as companies tried to exploit the more favourable conditions in advance of an expected slowdown in January.

In January 2021, following the end of the transition period, exports to the UK fell about 40% below the median for January in the 2011-19 period. While they recovered strongly in February and the recovery continued in March, they remain a little below the interquartile range

The behaviour of imports from the EU evolve in a broadly similar, but less pronounced, way and is not commented on in the interest of brevity.

Chart 1. UK exports to EU

Chart 2. UK imports from EU

Source: ONS as at 12 May 2021

UK – non-EU trade

To get a better sense of the degree to which UK trade was disturbed by Brexit, it is instructive to look at the behaviour of trade with non-EU economies. The figures below show that both UK goods exports to, and imports from, the non-EU economies were weak during the Covid pandemic. However, trade was not unusually weak in the beginning of 2021

Chart 3. UK exports to non-EU

Chart 4. UK imports to non-EU

Source: ONS as at 12 May 2021

Conclusions

Overall, these data show that the Covid pandemic depressed UK trade with the EU between March and September 2020 but then recovered as the end of the transition period approached. Following the end of the transition period in December 2020, trade fell sharply in January but has recovered considerably in February and March.

The key issue is whether long term trade flows will return to the levels of 2011-19 or remain below this range. While it seems likely that trade with the EU will be below what it might otherwise have been due to frictions introduced as a result of Brexit, trade may well continue to recover from Covid-depressed levels as part of the economic normalisation process on both sides of the Channel.
 

¹ The data are available here: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/uktradegoodsandservicespublicationtables

² The EU economy experienced a long patch of weakness in the 2011-19 period due to the euro area debt crisis. More recent bilateral trade data may therefore appear stronger than they otherwise would have been.