SHARP DECLINE IN UK/EU TRADE AS COVID-19 RESTRICTIONS AND BREXIT COMBINE

SHARP DECLINE IN UK/EU TRADE AS COVID-19 RESTRICTIONS AND BREXIT COMBINE

This week we got news that UK exports to the EU dropped by 40 per cent in January. While there is limited benefit from looking at a single data point, especially when there are so many random factors that could be influencing the figures – not least a global pandemic, they do serve a useful reminder that recovery needs more than just getting people vaccinated. Trade makes up about a third of UK GDP and the EU makes up about half of trade, so these figures point to a 5 per cent reduction in GDP, more or less in line with pre-Brexit forecasts. It’s unlikely that this one number paints the whole post-Brexit picture, however.

Elsewhere in better news, General Electric announced they’re investing in a new factory on Teeside to build wind turbine blades for a giant windfarm being constructed in the North Sea. With strong incentives for investing in manufacturing announced in the budget, and a willingness to pump money into infrastructure, its possible to see a way that 5 per cent GDP lost from trade might be made back.

UK: SHARP FALL IN TRADE WITH THE EU AS BREXIT AND COVID BITE

The UK’s deterioration in trade has been illustrated by two studies this week. Data from the Office for National Statistics show the rapid decline in imports and exports over the last 12 months as first the Covid pandemic and then Brexit disrupted international trade. Of the two, the impact of Brexit could be more troubling. Both EU and non-EU trade fell sharply in the first half of 2020 but had recovered by the end of the year. As 2021 started, overall trade volumes fell once more but EU trade has seen a much steeper drop.

Some of this will be Covid-related and some may be teething troubles with the new customs rules but trading with the UK’s biggest partner has been declining steadily in recent years. A new study from Aston University shows that while trade with the EU has been reducing, trade with other areas is not increasing fast enough to offset the reduction.

US: BIDEN SIGNS OFF $1.9TN STIMULUS PLAN

President Joe Biden’s $1.9tn stimulus plan was signed into law, paving the way for the rapid roll out of the next wave of economic stimulus in the US. Attention has focused on the $1,400 stimulus cheques and the extension of additional unemployment benefits but the huge spending plan contains measures with the potential for much longer-term impact, such as paid sick leave and a big increase in child tax credits. The president’s next domestic policy also has a longer-term aim as he eyes another huge increase in government spending, this time on infrastructure. The stimulus plan passed the Senate without a single Republican vote but it is likely any infrastructure bill will need some bipartisan support.

The bill’s approval left financial markets unmoved, with US Treasury yields undisturbed yesterday and the sale of $24bn of US 30-year government bonds passed smoothly. The relative calm in bond markets saw many US tech companies recover some of their recent losses and a slowdown in US job losses helped the S&P 500 set a fresh all-time high.

EQUITIES: DOMINO’S AND DELIVEROO JOIN LOCKDOWN WINNERS

One of the consistent beneficiaries of lockdown has been takeaway food businesses. This week Domino’s Pizza Group reported a bumper year in 2020, with sales up 10 per cent. This growth prompted the company to announce it will return £88m to shareholders through a dividend and buyback scheme, as well as plans to open 200 more stores and create 7,000 jobs. Shares are up around 10 per cent this week, comfortably above their pre-pandemic level.

It is not just Domino’s which has seen a big increase in sales. Food delivery business Deliveroo has also seen sales increase rapidly and it will be hoping a 54 per cent increase in 2020 will help it achieve a multi-billion valuation as it prepares to list in London. Despite its increase in sales it recorded a loss of £224m last year. It also faces stiff competition from Just Eat and Uber Eats and will be hoping the boost in business during the pandemic is permanent.