Amid the UK’s imminent departure from the European Union, we’ve heard so much about the potential impact on jobs and insurance contracts. Now trade credit insurer Atradius is saying the ‘Brexit effect’ has already hit UK-EU trade.
Examining trade relationships between the UK and the rest of the EU, Atradius economists found what they described as a reversal.
“From 2011 to 2015, EU exports grew, on average, 6.4% per year compared to a growth of 1.2% in UK-EU exports,” noted Atradius. “However, following the 2015 UK election which paved the way for the in/out referendum, the tides began to turn.
“The subsequent change in trade developments correlates to the depreciation of the pound which has made UK products more competitive in European markets with European products becoming relatively more expensive for Britons, thereby losing competiveness.”
The pound has depreciated against the euro since June 2016.
Atradius said UK exports to the EU have seen 6.8% growth – the highest rate since early 2012 – while EU trade into the UK posted only 0.9%. Previously, as illustrated above, EU exports to the UK grew at a faster pace than the other way around.
“The trade relationship between the UK and the EU-27 is significant with 48% of total UK exports directed towards the EU and 16% reciprocated,” commented Atradius commercial head Stuart Ramsden (pictured). “With such large volumes, any barriers to trade that might arise – for example in the forms of tariffs or longer wait times at the border – are likely to have a negative impact but the full extent of any change will only become clear when the UK finally leaves the EU.
“In the meantime, we have already seen changes in bilateral trade flows and the weaker British pound and its contribution through lower consumer purchasing power on UK GDP growth has depressed import growth from nearly all other EU countries.”
In terms of sectors, Atradius cited transport equipment as the most vulnerable European industry, given that its exports to the UK account for 11.3% of the total sector value added. Food products and textiles come in second and third, respectively, when it comes to Brexit vulnerability.
“Should negotiations further stall or even break down, renewed downward pressure on the pound would continue and possibly exacerbate these trade effects, increasing the challenges for EU-27 exporters,” added Ramsden.
“Our role as trade credit insurers is to support businesses in managing the risks of navigating the changing economic landscape so that they can reap the rewards of international trade whatever the future may hold.”