Historic post-Brexit shift as UK's EU imports overtaken by rest of the world

·Senior City Correspondent, Yahoo Finance UK
·3-min read
Lorries drive up A20 in Kent after arriving at the Port of Dover. Photo: Gareth Fuller/PA via Getty Images
Lorries drive up A20 in Kent after arriving at the Port of Dover. Photo: Gareth Fuller/PA via Getty Images

The start of 2021 saw a historic realignment of trade in Britain, as UK imports from the rest of the world overtook imports from the European Union for the first time since records began.

The Office for National Statistics (ONS) said on Wednesday that imports of goods from the rest of the world in the first quarter of 2021 were higher than EU imports for the first time since it began collecting data in 1997.

The shift followed Britain's exit from the European Single Market on 1 January 2021 when Brexit officially took effect. It led to new trading rules with the EU that slowed the movement of goods and left some businesses struggling.

Read more: £34bn Brexit VAT bill pushes companies to the brink

Trade with the EU fell by £18.4bn ($26bn) in the first three months of the year. Economists and analysts said it was unclear whether the shift would be permanent.

"With only one quarter of data available, and the ongoing pandemic and recession, it is too early to assess the extent to which this reflects short-term trade disruption or longer-term supply chain adjustments," the ONS said.

Many UK businesses also stockpiled goods at the end of 2020 for fear of disruption around the Brexit deadline, which led to lower demand for imports at the start of the year.

"Clearly Europe’s been waging its own battle with Coronavirus so disruption to supply chains is unsurprising," said Danni Hewson, a financial analyst at stockbroker AJ Bell. "What happens over the next six months will be more illustrative and bears watching."

Read more: Businesses stop serving EU due to 'nightmare' Brexit rules

Data published by the ONS on Wednesday suggested the stockpiling drag and "teething problems" around new rules could be easing. Exports to the EU rose by £1bn in March and imports increased by £800m.

"Despite restrictions and red tape, the amount of goods heading into the EU has almost returned to December levels," Hewson said.

However, exports and imports to and from non-EU countries rose by higher amounts. Hewson said the trend was "worth attention".

Read more: UK economy contracts 1.5% in first quarter, but rebounds in March

James Smith, a developed market economist at Dutch bank ING, said: "Disruption stemming from the abrupt arrival of the UK-EU trade deal in January appears to have eased. Exports to the EU – arguably the better barometer of difficulties, given most of the frictions so far have been on the EU-side – have recovered close to where they were at the tail end of last year. 

"Imports are still lagging, but equally, there was evidence of stockpiling in Q4 last year, which distorts the picture."

Smith said some sectors were still struggling with the new rules despite a generally improving picture.

"Trade data still shows things like food/live animal exports lagging more heavily behind late-2020 levels, reflecting higher levels of paperwork and transportation issues being experienced by the sector," he said. "Things are likely to become trickier again for various sectors when the UK government introduces full customs requirements from late-2021/early 2022."

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