Is Brexit hurting the UK economy? business data flashes a warning

The UK formally began its new relationship with the European Union on 1 January. Before that, and before the Covid-19 pandemic sped up world trade, Jason Vohra’s food wholesale business in England’s West Midlands, Lioncroft Wholesale Ltd, generated up to a quarter of that. Its annual revenue from customers in Spain, Portugal and other EU markets.

Lioncroft has now completely stopped exporting to the European Union. Sending 300 products to the EU before Brexit was as easy as moving goods within the UK Now, Mr Woohra said, asking them to hire a customs agent to gather the correct information for the products to clear customs. thousands of dollars to pay for it, and a lot more to actually send them. “Your profit is knocked straight out the window,” he said.

Leaving the EU leaves Britain out of the EU’s vast internal market of 445 million consumers and a still-larger customs area, stretching from the Atlantic to Turkey. It’s boosting business like the economy it needs to run all its engines to get out of its worst recession in a century.

For British businesses, the change means paperwork and ballooning costs. Trade with the European Union accounts for almost half of all British exports.

As a result, the UK is trailing the business performance of its peers as the pandemic subsides and global commerce is on the rise. Britain’s split with the European Union is also intensifying the disruption felt in Britain from supply-chain constraints affecting the global economy, including a shortage of truckers and gasoline.

“Britain plc has become harder, slower, more expensive, more difficult to deal with as a result of Brexit,” said Dale Harris, Chief Executive of ATL Turbine Services Ltd, which repairs turbine components for customers worldwide in Dundee, Scotland. does.

World trade, including imports and exports, was up 4% in July compared to the end of 2019 before Covid-19, according to the Trade Volume Index published by the Dutch government agency CPB, which tracks global trade. Exports rose by 3% and imports by 5%, wiping the damage of the pandemic as mass vaccinations facilitated the reopening of Western economies.

The UK stands by the weakness of its recovery in business. The CPB’s gauge of UK export volume at the end of July was 16% lower than at the end of 2019, while imports were flat. In the same time frame, US exports were down only 4% and imports were up 7%. Euro-area exports were flat compared to the end of 2019, and currency-area imports rose 2% from their pre-pandemic levels by July.

Understanding the impact of Brexit on trade is complicated by the pandemic’s impact on the broader economy. The UK suffered its biggest recession in 2020 since 1921 in the post-World War I depression, according to the latest figures. Early estimates suggested it was the worst year for development since 1709, when a harsh winter devastated British agriculture.

Thomas Sampson, associate professor of economics at the London School of Economics, said it was the worst performance among the group of seven advanced economies, which may help explain Britain’s sluggishness in business compared to its peers.

A Covid-19 lockdown, which included business shutdowns and stay-at-home orders in the first quarter of this year, exacerbated the disruption to business from Brexit.

Economists say dig deeper into the data, and the difficulties relating to Brexit become clear. The value of UK goods exported to the EU in the first eight months of the year was down 13% compared to the same period in 2019. Exports to non-EU countries were only 11% lower. Imports from the EU were down 20%. Imports from the rest of the world were 1% higher. These data exclude trading in precious metals such as gold, which could skew the picture of Britain’s trade due to London’s role as a center for the metals trade.

“The UK has failed to benefit from strong external demand,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics in London.

A free-trade agreement signed by London and Brussels in the closing days of 2020 ensured that there were no tariffs and quotas on most cross-border trade between the bloc and its former member. However, UK trade with the EU is subject to many of the formalities that govern EU trade with other non-EU countries, such as the US or China.

To avoid tariffs, exports must comply with regulations indicating whether they originate primarily in the UK or the European Union, and with products sold to the EU to clear customs duties with new ones. There should be a bunch of paperwork. Food and live-animal exports are subject to veterinary inspection to ensure that they meet EU standards. Exporters face new tax related complexities.

Henry Deakin, managing director of jeweler Deakin & Francis Ltd, said in February he shipped a made-to-order, £15,000,18-carat gold ring to a customer in Spain for his birthday. Since Brexit, EU countries have stopped recognizing UK marks that certify the precious metals content and Spanish customs will not accept company invoices stating that the ring is gold. . It took two weeks to convince officials to accept the hallmark, he said, by which time the customer’s birthday had passed.

Mr Deakin, whose family has been making jewelry since 1786, said, “It was unnecessary for something to go through.”

Plant-based food company VBites shipped a new vegan cheese worth £250,000 to France in February, with the aim of distributing it to long-term partners to increase sales. Founder Heather Mills said customs officials were unhappy with the paperwork and put the cheese in a refrigerated warehouse that was so cold that all samples became inedible. A spokesman for France’s customs authority declined to comment, saying they could not discuss individual matters.

“Getting cross-border aid in the middle of a war was easier than getting food in Europe,” Mills said, recalling the time she was in Yugoslavia with 27,000 prostheses during the war. Had driven a truck to Zagreb.

He said the company has entered into a new partnership with a food company in Europe to manufacture its products within the EU to avoid future troubles. Ms. Mills is also trying to increase sales in Australia, the Middle East and the US

Some business may shift for good. Dave Shand, chief operating officer of DeltaTech Global, which builds systems for the precise pouring of cement under the sea, said a German supplier informed him after Brexit that it would no longer supply his company, with a ship in the UK. The Aberdeen, Scotland-based firm has since found a new supplier in India, given the added costs and paperwork, but has been exploring ways to source or manufacture components domestically to avoid long shipping times. Yes, Mr. Shand said.

At ATL Turbine Services, Customer Service Manager Elena Hamilton and her team are learning to navigate the new reality. The firm serves the blades, fins, flame tubes and other components of the turbine. It has several major customers in European Union countries including Germany, Italy and Spain. Servicing components are often time sensitive.

Before Brexit, the paperwork for a repair request could be completed in half an hour, Ms Hamilton said. Now it takes half a day to fill the required commercial invoice. Earlier this year a shipment was supposed to take five days. It didn’t arrive until three weeks after it was stuck in a German customs warehouse while officials checked the paperwork.

A spokesman for Germany’s customs authority declined to comment on the specific incident, but said the agency has made extensive preparations for Brexit and delays often occur because the paperwork is incomplete.

Mr Harris, CEO of ATL Turbine, said he is hiring a worker to handle the additional work. He estimates that the new cost will remove at least half a percent of the company’s pre-tax income. A major concern is the impact on relationships with customers, said Ms. Hamilton.

“Some customers don’t understand what they can do to help with the paperwork,” she said.

Despite the challenges, Mr. Harris considers his company lucky. The work it does is highly specialized, it has few competitors and revenue during the pandemic. He said he cannot imagine leaving Europe given the importance of the market. “We are very committed to our European customers,” he said.

Trade data shows improvement in Q2 compared to Q1, a sign that companies are getting to grips with the new arrangements and benefiting from strong European growth. First quarter exports from the UK to the EU were 23% lower than the average quarterly total in 2019. By the second quarter, the shortfall had narrowed to 3%. Aiding recovery is the British export of Covid-19 vaccines and the materials used to make them, data shows.

Yet Britain’s share of EU trade is declining as it is outside the bloc and EU trade is growing rapidly. The UK contributed 7% of imports in 2019 among the 27 EU member states, according to data from Eurostat, the EU statistics agency. It had shrunk to 4.3% by August, as growth in overall imports outweighed any recovery in imports from the UK. The UK Office for National Statistics uses a different method to calculate imports and exports, which also shows a loss of market share, although smaller than that shown by Eurostat.

The business is not expected to contribute to the economic growth this year. The Bank of England expects the UK economy to expand 7% in 2021, its best performance in decades. Promoting expansion is consumer spending.

The government’s big hope is that free trade deals with other countries will increase Britain’s trade over time and compensate for any shortfalls the EU may have. The UK trade department has signed agreements with dozens of countries, including Canada, Japan and South Korea. The big prize is a free trade agreement with the US but progress has been slow. President Joe Biden and Prime Minister Boris Johnson both downplayed the prospects of a quick deal when they met in Washington in September.

Richard Hogg, chief executive of the recruitment firm Jackson Hogg in Newcastle, England, is among those looking beyond the European Union. Brexit has prompted him to pitch for business in the US where he hopes to hire employees and open offices. “We got to America faster than other parts of Europe,” he said.

Along with the new formalities surrounding EU trade are other hassles and additional expenses. Wood pallets used to ferry goods from a non-member state entering the EU require heat-treatment. They are 25% more expensive than standard pallets. Cellphone charges have soared for UK business travelers, who are now again starting to ravage the continent after the pandemic.

Richard Swart, Director of Global Sales and Quality at Berger Global, a North England-based unit of Germany’s Ringmetal AG. The company, which makes the rings used to seal container drums, said the pandemic was obscuring the true impact of Brexit.

His company was not able to complete a dozen shipments to Europe in January and February because additional customs costs and increased freight traffic would have pushed prices higher than originally agreed. Since then, he said, orders have surged as the global economy grew. When that is over, he worries the Brexit issues will become clear again. “Covid has submerged the Brexit problem,” he said.