It took years of bitter and divisive negotiations, yet turned out to be a lot of fuss about not very much
Source - daily telegraph - 21/12/21
The ports would be plunged into chaos. Stranded lorries would turn Kent into a giant car park. The supermarkets would run out of food, the factories would run out of parts, and our export industries would be blown apart.
Only a year ago this week, the economy was on a knife edge as we waited to see if a trade deal with the European Union could be agreed at the last moment, and the dreaded cliff-edge avoided. Chaos was looming as the clock ticked relentlessly closer to midnight.
As we know, a deal was finally agreed, on Christmas Eve to be precise. Twelve months on, how is that working out?
In fact, it turns out to have been a lot of fuss about not very much.
The shape of the UK’s trading relationship with the EU has already started to emerge.
We sell, and buy, far less from the rest of Europe than we did as a member, and some industries have suffered significantly from that; the balance of payments is steadily improving; critical industries such as financial and legal services are holding up well; and the UK is trading more with the world outside Europe.
There have been winners and losers, as you would expect, but average it out, and for all the hullabaloo the trade deal didn't make much difference to anything.
It was certainly a tense run-up to Christmas. After four years of bitter and divisive negotiations, and with the transition period that kept us effectively in the EU’s trading bloc for a year after we left about to expire, the UK looked poised to tumble out without a deal.
Businesses were stockpiling goods to deal with disruption to supplies, haulage companies were preparing for massive delays, and customs officials on both sides of the Channel were readying themselves for coping with the paperwork and checks demanded by switching to World Trade Organization rules overnight.
No one had any real idea what would happen. In the end, a last minute compromise was hammered out.
Trade would continue mostly without tariffs or quotas, but services were excluded, Northern Ireland was put under a special regime, and more checks would be put in place.
A year on from those nervous few days we are starting to have a pretty good idea of what our trading relationship with the EU will look like - and four key trends have emerged.
First, despite the deal, trade with the EU has fallen sharply, and it is likely to carry on going down. Supporters of our departure shouldn’t try to deny that, and they only make themselves look foolish when they do.
The monthly trade data moves around, and was distorted earlier in the year by stockpiling ahead of our departure, but the Office for National Statistics estimated in July that compared with a 2018 baseline monthly exports to the EU were £1.7 billion per month below where they would have been, and imports were £3 billion lower.
The important point is this. Trade across the English Channel has become significantly harder, and, surprise, surprise, there is now less of it. That is likely to continue, until trade settles down at a significantly lower level.
Next, the balance of payments deficit is coming down. The UK has been running a persistent and alarming deficit on the balance of payments for years, partly because of eroding competitiveness, but partly because of the deficit with the EU.
That is gradually improving, with the deficit down to a relatively trivial 2.3pc of GDP by this year (which, given how wonky the statistics are, might actually mean there is a surplus).
It is important to remember that the UK ran a huge trade deficit with the EU. According to the German statistical office, for example, its exports to the UK are now down by 11.5pc year-on-year, while its imports are down by 2.9pc.
Overall trade is lower with our main European neighbors, and while that might be good or bad overall, it is positive for the balance of payments.
Thirdly, critical services exports such as finance and legal services are holding up well. We can already see that in the data.
The City is, for the first time, selling more in the United States than it is the EU, while in legal services, where the UK ranks second only to the US globally, the UK racked up a surplus of £5.6 billion in the last year. That matters.
Services, and financial services in particular, were deliberately excluded from the trade deal, mainly because the negotiators in Brussels wanted to damage the UK’s competitiveness, and build their own industry. So far it doesn’t seem to have worked.
Selling high-end professional services around the world is one of the UK’s key strengths, and anything that damages that would have been a real blow.
Finally, the UK is shifting towards trading more with the rest of the world. As the UK trades less with the EU, it is, inevitably, trading more with other countries.
The ONS reported last month that imports from non-EU countries have been rising for ten consecutive months, and so have exports.
We now buy more from the rest of the world than we do from the EU. That is likely to continue, as the tariffs we inherited from the EU, especially on food and manufactured goods, are steadily dismantled.
Again, whether that is better or worse is a question of judgment, and everyone can take a different view, but there is no question that it is happening.
In truth, one year on it has become clear the trade deal that everyone was sweating about so much didn’t make a lot of difference one way or the other.
We are heading towards trade with continental Europe accounting for around 25pc of our total trade, which is roughly in line with the long-term historical average for the UK before we joined the EU.
There were winners and losers on both sides of the Channel, but once the dust settled it turned out the deal was a lot of fuss about not very much.
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