As the UK prepares to leave the European Union, nearly one in five British exporters (18%) have already changed trading partners to divert business outside the EU, a new study revealed.
An estimated £50bn ($66.7bn) of exports have been diverted since the Brexit referendum result in June 2016, a report by Lloyds Bank and Aston Business School showed.
Gwynne Master, global head of trade for Lloyds Bank (LLOY.L), said: “This year in particular, our business customers have faced a myriad of challenges not least of which is the global pandemic. Despite this, businesses are taking big strategic steps that will change the shape of their import and export business and the future of this great trading nation for years and decades to come.”
Aston Business School analysed 340,000 quarterly export transactions made by 26,000 UK exporters over a five-year period.
It found that relative growth in export values towards EU countries have decreased by an average of 8.7% per year.
“This is driven solely by Brexit uncertainty as those diverting trade beyond the EU have primarily opened up trade relationships with established emerging markets within the BRICS (Brazil, Russia, India, China, South Africa),” the study found.
It found firms have also diverted trade to countries the UK has traditionally strong relationships with, including Commonwealth nations Australia and New Zealand.
A poll of 1,200 British businesses undertaken in October for the report found that 24% of UK businesses and 29% of exporters have made changes to their supply chain because of Brexit.
Some 26% of exporters say they have diversified to create new opportunities outside the EU.
A third of exporters (34%) and one in six (16%) of all businesses plan to expand into new markets around the world.
The report highlighted business continuity plans, with 17% of exporters and 13% of all businesses saying they are stockpiling to ensure continuity of service post-Brexit.
The biggest shifts in trade diversion were by firms who export the least, the report found, which switched as much as 46% of new export growth to non-EU markets.
Jun Du, professor of economics at Aston and director of the Lloyds Banking Group Centre for Business Prosperity, noted that this “goes against conventional ‘trade gravity’ models, in which countries geographically close to each other tend to do more trade.”
Du said: “Our concern lies with the vulnerabilities faced by businesses that export less, forging these paths while lacking the infrastructure and scale of multinational firms. More needs to be done to help British businesses of all sizes navigate the future of international trade.”
Meanwhile, earlier this week, a UK minister warned the EU that Britain will not be “tied to their way of doing things,” as the deadlock continues in Brexit trade talks.
Ireland’s taoiseach – prime minister – Micheal Martin said he was “hopeful” an agreement could be reached by the end of the week. Less than 30 days remain until the end of Britain’s transition period, with severe economic disruption in the event of a no deal.
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