UK food and animal exports to EU slump, as economy shrinks in January – as it happened

Graeme Wearden

from on 2021-03-12 15:21 (#5F82K)

Rolling coverage of the latest economic and financial news, including January's UK GDP report

3.20pm GMT

And finally... here's our updated news story on the UK trade and GDP figures today:

UK exports of goods to the EU plunged by 40.7% in January during the first month since Brexit and the toughest Covid lockdown since the first wave of the pandemic, contributing to the biggest monthly decline in British trade for more than 20 years.

3.07pm GMT

Just in: US consumer sentiment has hit its highest level since the pandemic began, according to the University of Michigan's latest poll.

Surveys of Consumers chief economist, Richard Curtin, says vaccine optimism and the new $1.9trn stimulus package both lifted optimism among Americans this month.

Consumer sentiment rose in early March to its highest level in a year due to the growing number of vaccinations as well as the widely anticipated passage of Biden's relief measures.

The gains were widespread across all socioeconomic subgroups and all regions, although the largest monthly gains were concentrated among households in the bottom third of the income distribution as well as those aged 55 or older. Over the past fifty years, the key age group that consistently led recoveries, but was the last age group to indicate a pending recession, was consumers under age 35 (see the featured chart).

U.S MICHIGAN CONSUMER EXPECTATIONS (MAR) ACTUAL: 77.5 VS 70.7 PREVIOUS; EST 74.0

U.S MICHIGAN CONSUMER SENTIMENT (MAR) ACTUAL: 83.0 VS 76.8 PREVIOUS; EST 78.5

U.S MICHIGAN CURRENT CONDITIONS (MAR) ACTUAL: 91.5 VS 86.2 PREVIOUS; EST 88.3

UnitedStates Michigan Consumer Sentiment Prel at 83 https://t.co/CYGdEmm87g pic.twitter.com/prekifaYpk

2.55pm GMT

Over in New York, technology stocks are dropping as worries about inflation and rising borrowing costs resurface.

The tech-focused Nasdaq has dropped 1.1%, or 149 points, to 13,249.

For stocks, President Biden's speech represents almost too much of a good thing. The economy is reopening and, as a result, bond yields are rising-the 10-year Treasury yield is back above 1.6% again-putting pressure on high-growth stocks.

2.43pm GMT

Trade body Scotland Food & Drink say today's grim" export statistics show the damage Brexit has caused to the country's food and drink exporters.

Fundamentally important sectors within the food and drink industry for Scotland were among the hardest hit, they point out, with fish and shellfish, Scotland's largest food export category, down by a crippling 83%".

There is no sugar-coating these statistics, they are grim. We know Covid has reduced demand and there was stockpiling of products before the end of the year, however, right at the heart of this trade collapse is Brexit and the creation of huge, new, non-tariff trade barriers with our biggest export market.

This simply can't be talked away as a Covid issue. The crash in UK trade has not been seen in sales to non-EU markets, despite it being a global pandemic. Also, we did not see a fall like this at any point during the first lockdown.

I do expect to see an uplift in the February and March figures, but the trade barriers now created are real and costly. The so-called teething problems are still with us and have cost the industry tens of millions so far. This has to act as a catalyst to open negotiations with the EU to recognise aligned food standards and reduce the red tape burden. Without that, these trade figures will never recover to anything like the levels before. EU supply chains will permanently restructure, and UK businesses and jobs will lose out.

Of course, getting the EU to the table may now be much more difficult given that none of our EU counterparts will feel any real border friction until the end of the year. They will enjoy a grace period on border checks so wrongly denied to UK exporters. The Brexit dividend thus far has turned out to be a huge competitive disadvantage for Scottish food exporters."

BREXIT TRADE: The UK/EU trade figures for Jan 2021 are out. They're bad, really bad.
Stockpiling pre-Jan is a factor.
Covid is a factor.
BUT this graph shows an export crash much deeper than anything during Covid in 2020.
And read on for the food export trade collapse... pic.twitter.com/Rv8E2ld1V7

Food industry exports to EU in Jan 2021:
Fish & shellfish exports down 83%
Meat exports down 59%
Dairy exports down 50%
Seafood is the UK's biggest food export. To be clear, none of that was stockpiled & we haven't seen that level of fall until Brexit hit.
A horror show.

As always, 1 month's figures never tell the whole story.
But all we've heard from businesses of the pain of new trade barriers is in these figures.
Feb & Mar will show some pick-up in exports but, for the food sector, a restructuring of EU supply chains has begun, away from UK.

BREXIT STATEMENT
New UK/EU trade stats out.
There's no sugar-coating these statistics, they are grim.
And, yes, it's Brexit. pic.twitter.com/OFyWE7zPCg

2.20pm GMT

The pound is having a poor day, as the financial markets end the week on an edgy note.

Sterling has dropped by over a cent against the US dollar, to $1.388.

The weaker pound is largely a function of higher yields pushing the U.S. dollar into positive territory.

The market is looking to hedge inflation fears again by buying U.S. dollars."

Pressuring equities is the resumption of the upward move in the 10-year U.S. Treasury yield which hit 1.6% earlier this morning following President Biden's stimulus package. @ChrisJVersace and @EllesEconomy discuss: https://t.co/Shahp6ukgO

2.05pm GMT

Here's Dominic Goudie, head of international trade at the Food and Drink Federation, on the reasons behind the slump in UK exports to the EU:

A sharp fall in our exports to the EU in January is hugely disappointing but comes as little surprise given the challenges our industry faces. The closure of hospitality across Europe already had significant impacts on our exports in 2020, and this has been compounded by the late notification of the trade agreement just a week before entry into force, with significant new barriers to trade impeding movements of goods. Many small businesses are struggling to move any goods into the EU because of the collapse of movements via groupage shipments.

Businesses are facing wildly inconsistent demands and applications of rules at different EU ports that are blocking exports. Having taken a sensible and pragmatic step to ensure imports continue to flow, Government must now accept that exporters are facing serious problems that should be addressed as a priority. They need to work constructively with the EU to address barriers to trade by improving the implementation of the trade agreement and streamlining processes, otherwise EU exporters will face the same difficulties when the full UK border enters into force in 2022."

1.47pm GMT

Over in the US, the prices charged by producers rose last month - putting the spotlight back on inflation.

The US producer prices index rose by 0.5% in February, and was up 2.8% over the last year, partly driven by rising gasoline prices.

PPI pic.twitter.com/Hv4tqiQZ6J

US PPI #inflation numbers are out: In line to somewhat higher than consensus expectations.
Overall index is up 2.8% (Year-on-Year) and core 2.5%.
The big question for #markets is, as #PPI comes under greater pressure, will this be passed on to the #CPI or will margins be reduced.

February PPI was +0.5% inline with the estimate. The Core PPI was +0.2% also inline with the estimate. That makes the year/over/year +2.8% and +2.5% respectively. Yes inflation is up, but only back to where we were in April 2019.https://t.co/wyfH3UcCAS

1.32pm GMT

Burberry has upgraded its full-year profit forecast after a rebound in sales since December, driven by a strong recovery in demand for its luxury goods in China and South Korea.

Since December, we have continued to see a strong rebound and now expect revenue and adjusted operating profit to be ahead of consensus expectations,"

1.11pm GMT

Kallum Pickering of Berenberg bank writes that the slump in UK-EU trade in January highlights the negative impact of rising costs and frictions to trade, now that the UK has left the EU Single Market.

The Brexit related drop in UK-EU trade is likely to be a combination of two factors:

1) initial administrative problems with the implementation of the new UK-EU border - which should ease over time;

That UK-EU relations seem to be souring badly adds to the uncertain outlook. Tensions are rising over the politically sensitive Irish protocol'. The EU is currently threatening legal action after the UK unilaterally decided to extend the grace period on the checks it is legally bound to perform on trade between Northern Ireland and Great Britain.

This is a sensitive issue that could affect other elements of UK-EU relations and trade. If the EU perceives that the UK is shirking its legal commitments - pertaining to both the Brexit and future relationship agreements which London has ratified - then Brussels may react by levying retaliatory tariffs and, more importantly, taking an even harder line on the City of London's future access to the EU market.

12.39pm GMT

Here's my colleague Phillip Inman's analysis of today's trade data:

While most UK consumers found a way to weather the third lockdown, manufacturers were not so lucky after the government's last-minute deal with the EU plunged British ports into chaos and sent trade plummeting by 40%.

Without a smooth route across the Channel, the manufacturing sector was always going to struggle. That trade dropped by the most in more than 20 years illustrates how dependent on trade the UK is and has always been.

12.22pm GMT

Over in the eurozone, meanwhile, industrial production rose 0.8% in January, suggesting Europe's economy could be picking up.

Reuters has the details:

Euro zone industrial output was much stronger than expected in January and was revised sharply upwards in December too, the European Union's statistics office said on Friday, pointing to a better turn of the year despite the COVID-19 pandemic.

Eurostat said industrial production in the 19 countries sharing the euro rose 0.8% month-on-month in January for a 0.1% year-on-year gain, beating market expectations of a 0.2% monthly and a -2.4% annual reading.

Euro area #IndustrialProduction +0.8% in January 2021 over December 2020, +0.1% over January 2020 https://t.co/OwKCzWZAER pic.twitter.com/FI7Fqf9cH5

11.43am GMT

Lord Frost, the cabinet office minister in charge of UK-EU relations, has tweeted that a unique combination' of factors caused January's unusual' trade data.

He cites stockpiling before the end of the withdrawal agreement, the impact of Covid-19 lockdowns, and firms adjusting to the UK-EU trade deal.

1. I have been looking at today's trade numbers. This month's unique combination of factors made it inevitable that we would see some unusual figures this January. As @ONS has pointed out, caution should be applied when interpreting these statistics.

Why?

2. As well as changes to our trading relationship with the EU, we also saw:

Evidence of stockpiling late last year (as @ONS note). This meant less need to move goods in January.

Covid lockdowns across Europe bringing reduced demand for goods overall.

3. These effects are starting to unwind. The latest information indicates that overall freight volumes between the UK and the EU have been back to their normal levels for over a month now, ie since the start of February.

Government data shows that the number of lorries crossing from Britain to the EU is now close to what officials would expect. But if far more of them are empty, that doesn't help very much.

The government's definition of volume of trade includes lorries that are empty.

4. We are supporting firms through this period. Many businesses have made the changes needed to trade effectively with the EU, but we are focused on providing active and extensive support to others who need to adapt.

11.25am GMT

UK fish & shellfish exports to the EU fell to just 16m in January, today's trade data show.

That's down from 92m in January 2020 - so nearly an 83% plunge year-on-year, and follows 130m of exports in December.

A tidbit for @pmdfoster & all those who've been reporting on the fishing industry in recent months.

Fish & shellfish exports to EU fell by 83% compared to January 2020 from 92 million to 16 million.

Grim figures for the meat & dairy sectors

Live animal exports fell 73% from 22 million to 6 million
Meat exports fell 59% from 130 million to 53 million
Dairy exports fell 50% from 113 million to 57 million

Some more sector detail.

EU exports compared to January 2020

Clothing: -68%
Footwear: -76%

10.40am GMT

There is a simple reason for the plunge in UK exports in January - it is harder now to export to the EU.

So says David Lowe, partner at law firm Gowling WLG, who adds:

The Cabinet Office points to data about truck movements claiming this shows Brexit has had no impact. But that is misleading - a lot of trucks are going out of the UK empty (having brought in imports).

Truck movements is not relevant to what the actual exports are. The government needs to stop denying the obvious and instead focus on how EU exports can recover.

10.11am GMT

IoD senior policy adviser Allie Renison says today's UK-EU trade data are horrendous":

Even taking account the December start to lockdown and stockpiling increase in the months leading up to January and Brexit proper, these figures are horrendous.

The fact that services trade was far less affected and goods exports to non-EU rose marginally all in the same period reflects the particular impact that disruption from new Brexit changes has had.

63.6% decrease in exports of food/animals to the EU as well...new SPS controls really biting https://t.co/l1AylF9uq4

Take Steve Howell's Foodlynx. The firm, which sells British bacon and sausages to hotels and resorts across the EU, has suffered weeks-long delays to shipments since Brexit and spent thousands of pounds on customs fees. After the government's move on Thursday, EU firms will be able to sell their goods into Britain unimpeded until January.

My reaction is absolute dismay," said Howell, whose products are mostly gobbled up by British expats and holidaymakers. I can't believe they could be so stupid to kill U.K. exports, but allow free rein into our country from the EU."

9.53am GMT

Here are some neat, sobering charts showing January's trade data, from Ben Chu of The Independent:

Latest ONS figures suggest the value of UK exports to the EU in January - the month after the Brexit transition ended - were the lowest since....1997 pic.twitter.com/dnUKlaWv0N

...down 33% on the same month a year earlier... pic.twitter.com/VocZYJH6Bz

...the performance of food and live animal exports to the EU really tells its own story... pic.twitter.com/WF6E0Mke4V

...Is this all permanent Brexit damage?

Be careful on that front.

Lots of pre-January stockpiling will have affected UK-EU exports & other technical issues as explained brilliantly by @thom_sampson here ...https://t.co/qZHRr8nJGq

Clearly stockpiling distortions affecting the overall UK-EU trade data for Jan - though seems unlikely that the Continent was stockpiling live animals from UK pic.twitter.com/IiipCUFpsy

9.48am GMT

Rachel Reeves MP, Shadow Chancellor of the Duchy of Lancaster, says the trade data shows UK exporters are struggling under the Brexit free trade deal.

These figures make it clear just how many British businesses have been struggling with the new reams of costly red tape and bureaucracy this Government has wrapped them in.

Businesses have been appealing to the government to start listening to the problems they've been facing, but they've been left out in the cold.

9.38am GMT

The record drop in UK trade with the EU in January is the first official sign that the rupture with Europe was creating more than teething troubles", says the Financial Times.

They also flag up the slump in food exports due to fresh red tape at the border:

The largest decline in exports to the EU was in food products, which have been hit hard by manufacturers having new layers of bureaucracy imposed on them now the UK is no longer in the EU single market. These plunged 63.6 per cent in January.

There was a 56.6 per cent decline in exports in the chemicals sector as manufacturers raced to export products ahead of the UK falling out of the EU's Registration, Evaluation, Authorisation and Restriction of Chemicals (Reach) regulations.

The ONS #Brexit trade stats are ugly, even allowing for December stockpiling & "teething problems"

- exports to EU down 40.7%
- exports to Ireland off 47%
- imports from EU off 28.8%

No similar falls with rest of world

via @ChrisGiles_@FinancialTimes https://t.co/77ItybJP9P pic.twitter.com/RA7mBlAH8O

9.36am GMT

UK economy declines my 2.9% in January, much less than expected, during the toughest lockdown measures since the first wave of the pandemic - @ONS

The January fall in UK imports and exports was the biggest since records began in 1997. In comparison, exports to non-EU countries grew by 0.2bn, or 1.7%.

Exports of food and live animals to the EU, which includes seafood and fish, sank by 63.6% in January. No wonder the fishing industry were staging protests in Westminster.

9.12am GMT

The Chancellor of the Exchequer, Rishi Sunak, says the 2.9% drop in UK GDP in January shows the economic impact of Covid-19:

Today's figures highlight the impact the pandemic continued to have on our economy at the start of the year as we tackled the new variant of the virus- and I know this is a cause of concern for many.

But we also have reasons to be hopeful- we have set out a clear roadmap out of the pandemic, the NHS has vaccinated over 23 million people and my Budget last week set out our three part plan to protect the jobs and livelihoods of the British people.

Rather than securing the recovery, Rishi Sunak's budget last week risked weakening it through a combination of pay cuts and tax rises, and a looming cut to social security just as unemployment is set to spike.

The Chancellor's mask has slipped. He's making irresponsible choices now and has no long-term plan for the future. The people of Britain deserve better."

8.41am GMT

The 40% slump in UK exports to the European Union in January is an ominous' sign of the damage caused by the Brexit deal, says Suren Thiru, head of economics at the British Chambers of Commerce.

While changes in data collection limit historic comparisons, the significant slump in UK exports of goods to the EU, particularly compared to non-EU trade, provides an ominous indication of the damage being done to post-Brexit trade with the EU by the current border disruption.

Continued coronavirus restrictions and the unwinding of Brexit stockpiling also added to downward pressure on trade between the UK and EU in January.

The manufacturing sector, and in particular the automotive industry, suffered from initial border glitches, while the transport sector was also affected.

January saw a staggering 40.7% fall in exports to the EU as the Brexit related disruption coincided with restrictions caused by new COVID variants. In comparison, trade with non-EU countries grew by 1.7% pointing to Brexit as the likely culprit, as intense stockpiling in December 2020 brought some trade flows ahead of the Brexit deadline.

Some of this decline can be put down to lockdown, stockpiling and teething troubles. But it's clear that the Brexit transition has been far from smooth and markets will be paying close attention to whether current frictions mean long-term changes."

Among other things, the fall will be linked to a) stockpiling in late 2020, allowing businesses to avoid the need to trade in early January, and b) some ripple effects from the Covid-related closure of the ports back in December.

Still, there can be little doubt that some of this damage is down to disruption. Some things have probably improved in the weeks since, given that, for example, major haulage firms have largely resumed deliveries between the UK and the continent (some had paused given the high percentage of wrongly filled-in paperwork).

8.35am GMT

The UK government says stockpiling, the pandemic and adjustments to the Brexit deal all hit UK-EU trade in January.

A government spokesperson explains:

A unique combination of factors, including stockpiling last year, Covid lockdowns across Europe, and businesses adjusting to our new trading relationship, made it inevitable that exports to the EU would be lower this January than last.

This data does not reflect the overall EU - UK trading relationship post Brexit and, thanks to the hard work of hauliers and traders, overall freight volumes between the UK and the EU have been back to their normal levels since the start of February.

8.31am GMT

Exports of food and live animals from UK farms and the fishing industry to the EU tumbled by 63% in January (or 700m).

This is potentially because of stricter checks and certifications implemented by the EU at the end of the transition period. The Scottish Seafood Association says exports to the EU are being hit by red tape" delays between Scotland and France.

The consignment sign off is reportedly taking six times longer, and previously overnight transit of goods to France is reportedly now taking three days.

8.09am GMT

In the first month since Brexit on terms agreed by Boris Johnson's government, official trade figures showed exports of goods to the EU plunged by 40.7%, or 5.6bn, my colleague Richard Partington writes.

The slump in trade with the EU, excluding gold and other precious metals, is a reflection of disruption at UK borders.

8.04am GMT

Trade between the UK and the European Union has plunged in January, according to the latest data.

According to the Office for National Statistics, UK exports of goods to the EU slumped by 40.7% in January, a truly precipitous decline

External evidence suggests some of the slower trade for goods in early January 2021 could be attributable to disruption caused by the end of the transition period.

November and December 2020 saw increasing imports and exports of goods, particularly in machinery and transport equipment and chemicals.

These increases were consistent with potential stockpiling of goods from the EU in preparation for the end of the EU exit transition period. UK goods imports from the EU also peaked in the weeks approaching previous Brexit deadlines in March and October 2019.

Some of the EU export data will become available slightly more slowly under the new system. There will be small difference in January export estimates although this is unlikely to influence the trend of the movements in January.

In January, Brexit finally happened and UK imports and exports slumped (by value and by volume). Imports from the EU fell by 28%, exports fell by 40%. ONS notes that some of this was down to temporary factors" and that trade began to recover" towards the end of the month. pic.twitter.com/oqWenuAuTh

7.26am GMT

This chart shows how the UK economy shrank in January, although nowhere near as badly as in the April lockdown:

7.21am GMT

The construction sector bucked the trend, though -- it grew by 0.9% in January, driven by growth in new work.

7.19am GMT

UK factories also struggled in January, with industrial output sector down by 1.5%.

Manufacturing contracted by 2.3%, for the first time since the initial pandemic-driven fall in output in April 2020.

7.16am GMT

The UK economy shrank 2.9% in January as government restrictions reduced economic activity", says the ONS.

It was a month in which non-essential shops were closed, the nation's office workers largely continued to work from home, millions of children were home-schooled, and hospitality venues were shuttered again.

7.06am GMT

Breaking: The UK economy shrank by 2.9% in January, as the latest Covid-19 lockdown hit activity.

That leaves the UK economy 9% smaller than its pre-pandemic peak, the Office for National Statistics says.

GDP fell by 2.9% in January, remaining 9% below its pre-pandemic peak.

Services fell 3.5% (10.2% below), manufacturing fell 2.3%, (5.7% below) while construction grew 0.9% (2.6% below) https://t.co/CPS46SeCzV pic.twitter.com/W8b6LrCcEA

UK GDP for January 2021 - Month on Month -2.9% (EST;-4.9%) - much better than expected - GDP December 2020 was +1.2%

6.53am GMT

The UK's rapid vaccine rollout is expected to help the economy recover this year, points out David Madden of CMC Markets:

We know the British economy took a hit in January because the services PMI reading slumped to 39.5, an eight month low, also, the retail sales reading fell off a cliff as the level was -8.2%, a nine month low. In the final quarter of 2020, the UK economy grew by 1%, ahead of the 0.5% consensus estimate.

Today's growth update will have traders wondering whether the first quarter GDP report will be positive or negative. Even if the reading is very disappointing, it might not hurt sterling too much as the UK's vaccination distribution scheme is one of the best in the world. Hopes for the economy re-opening in the months ahead takes precedence over January's GDP numbers.

6.47am GMT

Here's a reminder of just how bad last year was for the UK economy:

6.43am GMT

Analysts at RBC Capital Markets predict the UK economy shrank around 4.7% in January, sharper than in November's lockdown.

The November lockdown caused a 2.3% contraction in monthly GDP. All of our preferred high-frequency indicators are consistent with the current lockdown having a much larger impact on activity than the November one.

We thus forecast UK January GDP falling 4.7% m/m due to the lockdown, but still considerably less than seen in spring 2020 during the first lockdown.

6.21am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After a record slump in 2020, we're about to discover how the UK economy fared at the start of 2021.
January was a tough month economically, with England entering its third national lockdown and tight restrictions in other parts of the country too. Businesses also had to get to grips with the UK-EU free trade deal, agreed just before Christmas.
Economists predict that the UK economy shrank by almost 5% during January, having returned to growth in December. A sharp decline, but not as severe as the 20% plunge suffered back in April.

Most of the damage was probably suffered by services sector companies, with industry and construction managing to keep operating despite the lockdowns.
We also get new UK trade data, which is expected to show a decline in imports and exports in January following a burst of stockpiling late last year. Germany reported earlier this week that its trade with the UK plummeted in January, with imports from Britain more than halving.

It's finally Friday!!

Futures taking a bit of a pause for breath this morning, while yields tick ever so slightly higher, & the dollar finds a little demand.

Busy docket ahead, including UK GDP, E/Z industrial production, US PPI, UMich sentiment & Canada lab mkt report.

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