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How Brexit trade issues are already hitting the UK

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Kalila Sangster
·3 min read
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A traffic marshall checks the documents of a freight lorry driver at Waterbrook Park facility in Ashford, south east England on January 15, 2021, as hauliers get used to life under the post-Brexit trade deal. - British companies are struggling with a large amount of red tape as a result of Brexit, with senior government minister Michael Gove recently admitting that there would be "significant disruption" at the border because of increased bureaucracy that is slowing the flow of freight. (Photo by BEN STANSALL / AFP) (Photo by BEN STANSALL/AFP via Getty Images)
A traffic marshall checks the documents of a freight lorry driver as UK manufacturers and services firms are impacted by disruption to supply chains and exports. Photo: Ben Stansall/AFP

Brexit trade issues are already hitting the UK just ones month after a trade deal between the UK and EU was signed, new economic data has revealed.

Manufacturers and services firms have been impacted by disruption to supply chains and exports, according to new data from IHS Markit.

Flash estimates for the purchasing managers’ index (PMI) survey for Britain’s manufacturing and services sectors — a bellwether survey on the state of the UK economy — showed that Brexit is adding to the strain on the economy on top of the impact of the coronavirus pandemic.

Supplier delivery times for UK factories rose the most among the six “flash” PMI surveys published by IHS Markit last week for France, Germany, Japan, Australia, the US, and the UK.

Chart: IHS Markit
Chart: IHS Markit

“This was almost exclusively linked to both Brexit disruption and a severe lack of international shipping availability,” according to IHS Markit.

Under the terms of the deal agreed on Christmas Eve, trade between Britain and the European Union remains free of tariffs and quotas but a new customs border means new paperwork and checks which have contributed to the rise in supplier delivery times and export disruption.

Prime minister Boris Johnson described the disruption as “teething problems” which have been made worse by the impact of the coronavirus pandemic, according to Reuters.

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International Monetary Fund chief economist Gita Gopinath on Wednesday estimated that Brexit disruption was likely to reduce British economic output by around 1% in the first quarter of 2021.

UK services companies were hit hard in January, according to the data. Services exports decreased faster in the UK than any other country in the six flash PMIs published this month, compared with a trend of improvement registered in most other economies.

The reading for UK services export orders came in at 39.4, on an index where figures above 50 show most firms expanding and below 50 show decline.

Chart: IHS Markit
Chart: IHS Markit

Services companies make up the majority of the British economy and generate a trade surplus with the EU.

“The service economy was hard-hit by restrictions on trade and reduced consumer spending at the start of the year,” IHS Markit said.

Following the initial disruption, the costs and benefits of Brexit are likely to become clearer over time, with some critics warning that some of the extra costs and delays will be permanent. Brexit supporters argue that the UK will benefit in the long term by striking its own trade deals and creating its own regulations outside the EU.

Many UK businesses are not optimistic — A Confederation of British Industry survey published last week showed British manufacturers’ confidence in their ability to compete in the EU market has fallen to its lowest level since records began 20 years ago.

Chart: Confederation of British Industry
Chart: Confederation of British Industry

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