One year on—Trade in goods between Great Britain and the European Union Contents

Chapter 2: Economic context

UK-EU trade flows

13.In terms of the impact of the transition period and the implementation of the TCA on trade flows, official trade statistics show that there was a sharp drop in UK-EU trade immediately after the end of the transition period, with a partial recovery since.8 This is illustrated by the graphs below (Fig.1 and Fig. 2), submitted to us in evidence by the Office for National Statistics (ONS).9

14.As the National Audit Office (NAO) has concluded in a report published on 5 November 2021, these statistics demonstrate that “The UK’s trade with the EU fell significantly during the first quarter of 2021 but had partially recovered by the second quarter.”10 Elly Darkin, Senior Associate at Global Counsel, saw this sharp drop and incomplete recovery as evidence that the TCA had had “a chilling effect on EU-UK supply chains” as a result of the TCA and the end of the transition period.11

Fig. 1: UK imports of goods from EU and non-EU countries, excluding precious metals, August 2018 to August 2021

Chart, line chart, showing value of imports from EU and non-EU from Aug 2018 to Aug 21

Source: Written evidence from the Office for National Statistics (TIG0012)

Fig. 2: UK exports of goods to EU and non-EU countries, excluding precious metals, August 2018 to August 2021

Chart, line chart, showing value of exports to EU and non-EU from Aug 2018 to Aug 21

Source: Written evidence from the Office for National Statistics (TIG0012)

15.The ONS has previously highlighted evidence that firms stockpiled goods in the run-up to the end of the transition period, creating a sharper rise and then fall in UK-EU trade; as such, they stress that “the decreases seen in Quarter 1 2021 should be taken in the context of the increases seen in Quarter 4 2020”.12

16.The ONS data also appears to show that the reduction in trade flows has been more long-lasting for imports from the EU than exports to the EU, with exports recovering further and faster—despite hitherto facing greater trade barriers due to the asymmetry of checks and controls. According to the Office for Budget Responsibility (OBR)’s October 2021 Economic and Fiscal Outlook, which is based in part on ONS statistics, UK exports of goods to the EU fell by 45% in January 2021 and had recovered to a level 15% below the end of the transition period by August 2021, whereas UK imports of EU goods only fell by 30% in January 2021 but were still down by 20% by August 2021.13 The ONS also highlighted to us that UK imports of goods from the EU were consistently lower than UK imports of goods from outside the EU from January to August 2021, having been consistently higher throughout 2018, 2019 and 2020.14

17.Different explanations were posited for this uneven recovery and the varying impact reported in the evidence we received:

18.There are also additional confounding factors, which further complicate analysis of the trade data:

19.Such a complex and rapidly changing trading environment adds weight to the prediction made by Sam Lowe, Senior Research Fellow at the Centre for European Reform, that “there will come a time when comparing pre-TCA and post-TCA is not helpful”.20

The impact of the COVID-19 pandemic

20.As alluded to in the first section of this chapter, the task of analysing the economic impact of the TCA and the end of the transition period has been complicated by the impact of the COVID-19 pandemic. William Bain, Head of Trade Policy at the British Chambers of Commerce, explained, “We had a huge shock to global demand … we had problems such as global shipping costs … There has been a perfect storm caused by Brexit and COVID coming together at the same time.”21

21.For the ONS, this has made it “difficult to fully detangle [sic] the impact the coronavirus and EU exit had on UK and international trade while they are still having an influence.” The ONS also stresses that 2021 trade trends are best compared with 2018, “the most recent period in which relatively stable trade patterns were observed.”22

22.Comparisons between EU and non-EU trade during 2021 are one possible way of shedding light on the subject. Citing ONS trade data, the OBR’s October 2021 Economic and Fiscal Outlook noted that while goods trade with the rest of the world had recovered to 7% below 2019 levels by August 2021, trade with the EU was still 15% down over the same period. The OBR concluded, however, that while “the evidence so far suggests that both import and export intensity have been reduced by Brexit, with developments still consistent with our initial assumption of a 15 per cent reduction in each”, it is “too early to reach definitive conclusions” given the pandemic, delays in the full implementation of the TCA (notably the introduction of full UK import controls), the time needed for businesses to adjust, and the general volatility of trade data.23

23.Similarly, the NAO has noted that the fall in EU trade has been greater than the fall in non-EU trade but agreed that “it is not possible to disentangle the extent to which these changes related to EU Exit and the effect of the pandemic”.24 Several witnesses agreed with this analysis.25

24.Nevertheless, the ONS’ Business Insights and Conditions Survey shows that businesses perceived the end of the transition period as a much more significant factor than the pandemic in terms of the challenges they faced in importing and exporting in the early months of 2021. This is reflected in the chart below, submitted to us in evidence by the ONS.26

Fig. 3: Percentage of currently trading businesses that have reported experiencing challenges, weighted by count, December 2020 to April 2021

Linme charts showing percentage of businsesses reporting experieincing challenges

Source: Written evidence from the Office for National Statistics (TIG0012)

25.Not all sectors have been equally affected, however. ADS, which represents the aerospace, defence, security, and space sectors, had seen “no significant disruption to production or flow of goods … due to COVID suppressing demand over the last year and a half.”27

26.The difficulties in disentangling the impact of Brexit and COVID-19 in the trade data, however, should not obscure the challenges companies are facing on the ground, the causes of which are easier to identify. James Sibley, Head of International Affairs at the Federation of Small Businesses, said that “structural issues” such as rules of origin requirements and VAT issues “are things that, obviously, are not related to COVID.” Similarly, Dr Anna Jerzewska, Director of the Trade and Borders consultancy, drew a distinction between the “macroeconomic perspective”, where distinguishing Brexit and the pandemic was “difficult and problematic”, and areas such as customs, where “it is very, very clear what is Brexit related … and what is not.28

27.A further complicating factor is that the pandemic’s effect on trade has not been universally negative. For example, there have been spikes in the trade of certain products, such as pharmaceuticals and personal protective equipment.29 Emma Churchill, Director-General of the Border and Protocol Delivery Group in the Cabinet Office, even suggested that the pandemic, rather than Brexit, could also explain the disparities between EU and non-EU trade:

“It is the case that non-EU imports have been higher than EU imports for a number of months. If you look at what the ONS has to say about that, though, we think some of it might be just that the types of goods that were being imported during the pandemic period—PPE, for example—also had an effect on where those goods might be originating [from].”30

28.In terms of the Government’s view of the situation, the Paymaster General, Michael Ellis MP, said it was “axiomatic that the effect of the pandemic will have had a deleterious effect on trade and industry”, and also cited “global supply chain issues” seen in other countries, concluding that he did not think it was “possible to disaggregate” these issues from one another.31

29.We note that the available Office for National Statistics (ONS) trade figures suggest that there was a sharp fall in UK-EU trade immediately after the end of the transition period, with a partial recovery since. However, this trade data should be interpreted with caution, given the complications created by the COVID-19 pandemic, stockpiling before the end of the transition period, and the general difficulties in interpreting volatile trade data shortly after the fact. While it seems clear that the imposition of trade barriers had a pronounced initial impact on trade flows, more time is needed to fully assess the macroeconomic impact of Brexit on UK-EU trade in goods.

30.We agree with our witnesses that, at a macroeconomic level, it is very difficult to fully disentangle the impacts of Brexit and the COVID-19 pandemic on UK-EU trade so far. We do note that the falls in UK-EU trade seen this year are greater than those seen in UK trade with the rest of the world, but trade with the rest of the world has not had to cope with the same significant changes as EU trade. It will take time before a proper comparison can be made.

31.Nevertheless, difficulties in interpreting macroeconomic trade data should not obscure the challenges and extra costs that some companies have faced on the ground, which are little to do with the pandemic and are instead a direct result of the new non-tariff barriers associated with the end of the transition period.

Labour shortages

32.As well as the impact of COVID-19, our inquiry took place amid concerns over serious labour shortages in the UK economy, regularly reported in sectors such as road haulage, hospitality, and tourism, which have had a concomitant effect on supply chains. The causes of labour shortages are myriad and a full analysis of them is beyond the scope of this inquiry. However, in this section we make some brief comments on the linkages between the labour shortages and GB-EU trade in goods.

33.Sarah Laouadi, Head of International Policy at Logistics UK, took the view that the labour shortages on the one hand and the TCA’s erection of barriers to trade with the EU on the other “are two distinct issues, but they are affecting the logistics industry simultaneously.”32 Joe Marshall, on the other hand, said that while “the most obvious effect of Brexit is around the availability of labour,” non-tariff barriers could also be exacerbating the problem:

“We have heard anecdotal evidence that, where EU drivers have a choice of operating into the UK or EU, it is less attractive to operate into the UK now because you have to deal with all the different customs requirements when moving goods, particularly back into the EU but also some going into Great Britain … Risks of delay affect some parts of the haulage sector, as some driver pay is based on distance travelled, not just time spent.”33

34.In the same vein, Sam Lowe asked, “if you [as a haulier] are operating in a tight labour market and you are able to choose the jobs you take on, why would you choose the one that comes with a very large, additional administrative burden … ?”34

35.Sarah Laouadi, however, said that it was “difficult to distinguish the weight of Brexit” from “other reasons” for which EU drivers might have left the UK; for example, “because they wanted to spend the pandemic closer to their family in their home country.” She also stressed that, as “in any profession”, people have retired or left the industry for personal reasons, and that the pandemic “interfered with driver testing” and thus exacerbated labour shortages.35

36.In terms of the effects of these labour shortages on UK businesses (in addition to the visible impact on supply chains), Logistics UK saw these as “creating significant challenges for companies to maintain their day-to-day operations, thus using up resources that could otherwise be dedicated to preparations for the upcoming import controls.”36 Dr Anna Jerzewska argued that it further disincentivised EU investment in the UK economy: “when EU companies are deciding whether they want to extend contracts with UK clients or suppliers … this becomes an overall picture of how difficult it is to trade with the UK at the moment.”37

37.The ongoing labour shortages add additional complexity to the multiple challenges facing supply chains and may have been further exacerbated by the new non-tariff barriers to trade. The Committee welcomes the Government’s efforts to address these problems in the short term but urges continued focus and attention to ensure that it does not further hinder business in adapting to trading as a third country with the EU.

Additional economic risks: Northern Ireland and fisheries disputes

38.Ongoing disputes between the UK and the EU over the implementation of the Protocol on Ireland/Northern Ireland and over fisheries matters present additional areas of potential economic risk for trade in goods. However, as discussed in paragraphs 10-11, this inquiry did not take significant evidence on these matters.

8 Although this report focuses on trade between specifically Great Britain and the EU, the available trade statistics are for UK-EU trade (that is, including Northern Ireland). Given Northern Ireland’s small economic size within the UK, however, it seems unlikely that its different trading relationship with the EU will have a significant effect on the UK-wide figures. Analysis of HMRC trade data collated by the House of Commons Library suggests that in 2019, Northern Ireland made up 3.2% of UK goods exports to the EU and 1.9% of UK goods imports from the EU. See House of Commons Library, Statistics on UK-EU trade, Briefing Paper 7851, 10 November 2020

9 Written evidence from the Office for National Statistics (TIG0012)

10 National Audit Office, The UK border: Post UK-EU transition period (5 November 2021), p 10: [accessed 30 November 2021]

11 Q 1 (Ellie Darkin)

12 Office for National Statistics, The impacts of EU exit and the coronavirus on UK trade in goods (25 May 2021):–05-25 [accessed 30 November 2021]

13 Office for Budget Responsibility, Economic and fiscal outlook – October 2021 (27 October 2021), p 58: [accessed 30 November 2021]

14 UK exports of goods to the EU have also been lower than UK exports of goods to non-EU destinations for 7 out of the 8 months from January to August 2021, but unlike for imports this is not a new development, as exports of goods to non-EU destinations were also higher than those to the EU for most of 2018, 2019 and 2020. See written evidence from Office for National Statistics (TIG0012).

15 Q 1 (Joe Marshall)

16 Q 50 (Dr Anna Jerzewska)

17 Written evidence from Office of National Statistics (TIG0012); Office for Budget Responsibility, Economic and fiscal outlook – October 2021 (27 October 2021), pp 59-60: [accessed 8 December 2021]

18 To give one example, the Centre for European Reform think-tank has modelled the economic impact of Brexit against a hypothetical ‘doppelganger UK’ which remained in the Single Market and customs union. Its most up-to-date modelling, including figures for September 2021, shows a reduction of 11.2% in the UK’s trade in goods with the EU compared to the ‘doppelganger UK’, equivalent to £8.5 billion.

19 Q 3 (Ellie Darkin)

20 Q 1 (Sam Lowe)

21 Q 21 (William Bain)

22 Office for National Statistics, The impacts of EU exit and the coronavirus on UK trade in goods (25 May 2021);–05-25 [accessed 30 November 2021]; see also Q 21 (Luke Hindlaugh).

23 Office for Budget Responsibility, Economic and fiscal outlook — October 2021 (27 October 2021):, pp. 59-60 [accessed 8 December 2021]

24 National Audit Office, The UK border: Post UK-EU transition period (5 November 2021): [accessed 30 November 2021]

25 Q 1 (Joe Marshall); Written evidence from Dr Terence Huw Edwards and Dr Mustapha Douch (TIG0001)

26 Written evidence from the Office for National Statistics (TIG0012)

27 Written evidence received from the ADS (TIG0003)

28 Q 36 (Dr Anna Jerzewska, Sarah Laouadi).

29 Q 1 (Sam Lowe) and Q 59 (Sophie Dean)

30 Q 59 (Emma Churchill)

31 Q 83 (Michael Ellis MP); see also Q 59 (Emma Churchill).

32 Q 54 (Sarah Laouadi)

33 Q 11 (Joe Marshall)

34 Q 11 (Sam Lowe)

35 Q 54 (Sarah Laouadi)

36 Written evidence from Logistics UK (TIG0010)

37 Q 55 (Dr Anna Jerzewska)

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