Corona and then also Brexit: British economy in the valley of tears

Tuesday, February 02, 2021

Corona and then also Brexit
British economy in the valley of tears

The corona pandemic has hit the British economy hard, unemployment and national debt are higher than they have been for a long time. And now tariffs are making life difficult for companies. It looks like the UK left the euro zone at the worst possible time.

Now the cardboard is running out: Hardly a day has passed in Great Britain since Brexit without a new problem becoming known. Trucks return empty to mainland Europe, customers refuse to ship goods from the EU because of high customs duties, and some plants are no longer allowed to be delivered from Great Britain to the province of Northern Ireland. Brexit, which has been in full effect since the beginning of the year, has hit the British economy hard with its new tariff barriers. And that at a moment when the economy is slowly working its way out of the corona low.

Take the automotive industry, for example: In 2020, compared to the previous year, production fell by 29.3 percent to its lowest level since 1984, as the SMMT association recently announced. That was mainly due to Corona. But the industry is now particularly hard hit by the Brexit customs declarations because of its complex supply chains, said the President of the British Chamber of Commerce in Germany, Michael Schmidt. "There is a whole range of components that go through the canal three, sometimes four times, before they are installed in the vehicle. This is a real issue because it has to be calculated every time."

This particularly affects trade with Germany, because vehicles and car parts make up a large proportion of imported goods. As the German foreign trade company GTAI announced, the share of around 29 percent of British goods imports from Germany in 2019 fell to 25.9 percent in the period January and November 2020 (on a sterling basis).

Lockdown pushes companies to the limit

Other numbers also give little cause for optimism. The unemployment rate recently rose to 5.0 percent, the highest level in four years. Economic output fell by 2.6 percent, mainly due to the new corona lockdown. The bottom line is that, according to an analysis, around 6,000 pubs, restaurants and clubs had to finally close in 2020 due to the consequences of the pandemic, three times as many as in 2019.

Because of the billions in Corona government aid for companies, the national debt climbed to a record level. The industrial association CBI is nevertheless quite relaxed about the situation. People have now adjusted to the corona restrictions, according to Anna Leach, the CBI's vice chief economist. "That's why the blow to the economy is not so hard." Unlike in the first lockdown in spring 2020, some areas are still in operation. "We know how fast the economy can start when the restrictions are lifted," said Leach, referring to high consumer spending in the summer.

The economic expert was also demonstratively confident with a view to Brexit. "Companies have only noticed the changes for a week or two, so we still have a few weeks to really assess what can and should be done," she said. Prime Minister Boris Johnson's administration speaks of "teething troubles" that would still subside.

Customs duties are expensive and time-consuming

But business representatives see the situation much more critical. The problem is much more fundamental, said Ian Wright, head of the FDF Food and Beverage Manufacturers Association. "Many companies will stop trading with the EU because it is too expensive and time-consuming." Wright cites a large company as an example. "She normally needs three hours for the paperwork. Since Brexit, she has only managed it in a maximum of five days." One problem is that there are too few customs officers. "The bureaucracy is five times higher, so there should be five times more customs officers. But there is not a single additional," Wright said.

Foreign trade expert Marc Lehnfeld from GTAI emphasizes another problem. "Small and medium-sized companies in particular are burdened by the customs border because the additional costs are allocated to a smaller sales volume than with large companies". Several UK companies set up camps in the EU to ease the additional costs and bureaucracy involved in doing business in the EU. In the UK media, company bosses were quoted as saying that the authorities in London had advised them to move.

Ironically, despite all Brexit and Corona worries, Germany could oust the US as the UK's most important trading partner in 2020. The external trade in goods fell between January and November by 16.7 percent year-on-year to 78.2 billion pounds (88.8 billion euros). But trade between Great Britain and the USA fell even more markedly, by around a fifth (20.6 percent) to 77.2 billion pounds.

However, the end of the flagpole has probably not yet been reached. Because of the Brexit, the volume of trade between Great Britain and the EU will continue to fall significantly, predicts Andreas Glunz, Divisional Director for International Business at the auditing company KPMG. For example, Great Britain was the gateway for fashion, textiles, accessories and toys from Asia to Europe. That will change now.