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What do the latest data reveal about UK trade?

Total trade was down in Q1 of 2021 as worldwide lockdowns halted economic activity. Trade with the EU took a particularly large fall as the UK’s transitory departure period ended on December 31st suggesting Brexit has already had a large impact on trade.

According to the latest data release from the Office for National Statistics (ONS), UK trade was down in the first quarter of 2021 (January to March). Imports fell by 12.3% compared with the first quarter of 2020 and exports dropped by 12.2% (see Figure 1).

The second wave of the pandemic, lockdowns, and the effects of the final Brexit deal are likely explanations for this quarter’s large drop. With imports falling slightly more than exports, the UK’s total trade deficit has fallen by 15% compared with last year and is now just over £3 billion (compared to £3.6 billion in 2020).

Figure 1: Total UK Imports and Exports, and with the EU 28 countries

Source: ONS

The UK has run a trade surplus in services for over 20 years, while running a trade deficit in goods. This means that the UK has consistently exported more than it has imported in areas such as finance, legal work, or insurance. In contrast, it usually buys more physical goods, such as cars or building materials, than it sells.

The trade surplus in services grew by 7.2% last quarter, compared with the first quarter of 2020. This was due to a 22.8% fall in service imports and only a 12.1% fall in exports: inbound services trade fell more than outbound services trade (see Figure 2).

The trade deficit of goods has increased by 4.4% in the first quarter of 2021 compared with a year ago, with goods imports falling 8% and goods exports, 12%: inbound goods trade fell less than outbound (see Figure 3).

Figure 2: Total imports and exports of goods in the UK, and with the EU 28 countries.

Source: ONS

Figure 3: Total imports and exports of services in the UK, and with the EU 28 countries.

Source: ONS

The worldwide fall in trade in early 2021 – shown in the figures above – is likely to have been driven at least in part by lockdowns and new outbreaks of Covid-19 limiting overall economic activity.

While this effect may be temporary, we are yet to see the structural changes the pandemic will bring to economies around the world and how these might affect trading patterns more broadly. For example, if people continue to work from home after the pandemic, a diminished demand for new cars may decrease imports of vehicles and vehicle parts.

This final Brexit deal is also likely to have contributed to the fall in UK trade, with the transition period for the UK to leave the European Union (EU) coming to an end on 31December 2020. In terms of UK-EU trade, compared with a year ago, total imports and exports were down by 19.2% and 13.4%, respectively. This is a larger drop than has seen between the UK and the rest of the world (see Figure 1).

Imports and exports of goods between the UK and EU were down 13.9% and 13.5%, respectively (see Figure 2). Meanwhile, the trade surplus in services to the EU grew by 63.3% as services imports fell by 34.5% and exports fell by ‘only’ 13.1% compared with the first quarter of 2020 (see Figure 3).

The longer-term structural effects of Covid-19, as well as a new post-Brexit trade landscape – including bilateral agreements with other countries and regions – will likely further change the UK’s trade patterns over the coming months.

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Author: Max Wood
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