Exports to EU down 40% in January – business news 12 March 2021.

James Salmon, Operations Director.

Exports to EU down 40% in January, GDP falls 2.9%, reaction to postponement of border controls,  worry over interest rates and more business news.

UK exports to European Union fall 40% in January

In the first month following Brexit taking effect and the introduction of new trading rules between the UK and the EU. on the 1st January,  UK goods exports to the European Union fell a staggering 40.7%, according to the Office for National Statistics (ONS), while imports also fell by 28.8%.

Despite the sharp fall, the ONS said it was “likely the result of temporary factors”.

GDP falls 2.9%

New data showed the UK economy shrank by 2.9% in January as the third lockdown came into force.

The economy is 9% smaller than it was before the start of the pandemic.

The ONS said January’s fall was a “notable hit” albeit smaller than some had expected.

While a drop in output is usually a sign of a struggling economy, we are, by this point, all too aware of the effect national lock-downs have on output and production. Businesses will still be encouraged by the continued support on offer from the UK Government and the Chancellor’s  latest Budget earlier this month.

Analysts still predict that the UK will react like a coiled spring as vaccines progress and the lock-down comes to an end.

Reaction to border control postponement.

The government’s decision to delay border checks on goods coming from the European Union until 2022 has delighted the country’s importers but left exporters angry. Britain’s one-sided Brexit border is coming under increasing criticism from industry, with business figures saying it gives EU firms a leg up over U.K.-based exporters, which have had to grapple with the full range of EU customs controls since 1st January. The January trade balance data above reveal the massive effect on the economy of Britain’s departure from Europe’s single market.

Sunak worries about risk of rising interest rates

The Chancellor told MPs on Thursday that a reversal of low-cost borrowing would have a “significant impact” on the public finances over the next few years. Explaining his Budget decisions to lawmakers, Rishi Sunak acknowledged the risk of rising bond yields and that the Bank of England’s QE programme amplified these. Ben Wright in the Telegraph explains that the UK’s margin for error when it comes to rates is “vanishingly small” and cites BlackRock’s Vivek Paul who says the country has the least sustainable deficit of any developed nation. “If and when investor sentiment begins to turn, it is likely to hit the UK faster and harder than any other major economy.”

The International Monetary Fund yesterday warned central banks to be vigilant against a sudden spike in interest rates and tighter financial conditions that could spill over into emerging markets.

Private business owners hurt more by corporation tax hike

Analysis by Blick Rothenberg indicates Rishi Sunak’s corporation tax increases post April 2023 will hurt private business owners harder than the major corporations the Chancellor said it was aimed at. Nimesh Shah, chief executive of Blick Rothenberg, said: “The increase to corporation tax may have been badged to target big business, but the effect for the self-employed is clear. It may not be an obvious attack, but it achieves the Chancellor’s previous warning that the self-employed would face higher taxes. The tax impact for private business owners receiving dividends is far more severe.”

Banks urged to step up support for new business

Crowe ’s managing partner for the Midlands says entrepreneurs are still facing barriers to opening business bank accounts. Johnathan Dudley points out that start-ups and the self-employed launching new businesses played a key role in the recovery from previous recessions, and the exit from the coronavirus pandemic would be no exception. “It is absolutely vital we turn the tap on to provide essential business banking facilities if we are to achieve the rapid return to growth which is vital to the UK’s economic recovery,” he explains.

Manufacturing M&A activity set to remain strong

BDO predicts strong manufacturing M&A activity throughout the year with many deals driven by a desire to make supply chains more resilient. Roger Buckley, UK industrials mergers and acquisitions partner at BDO, said: “Deal activity held up remarkably well in 2020, and the market looks set to remain active in 2021. Many corporates have significant cash reserves to invest and private equity firms sitting on considerable stores of dry powder are competing to acquire quality manufacturing businesses that have proven their resilience over the last year.”

Consumer businesses expect to reduce capital expenditure

Research by Deloitte has shown that 73% of CEOs and CFOs in the consumer business sector are planning to accelerate cost reduction programmes this year due to the pandemic.

Ministers plan overhaul of capital market rules to boost City

The Treasury is planning a wide-ranging review of UK financial markets rules to improve the City’s competitiveness. City minister John Glen told Bloomberg that the review would be “as broad and as inclusive as possible so that we really look at everything”. The overhaul in the immediate term is likely to focus on Mifid II rules, which critics say have had only marginal benefit and created layers of red tape. The FT reports that the Government wants to hand the Financial Conduct Authority powers to shape future rules, rather than continue to make changes by parliamentary legislation. Rules making it easier for banks to hold capital are also being considered, along with scrapping the share-trading obligation and the cap on the amount of trading that investors can execute on private marketplaces. A Treasury spokesperson said the Government wanted “to make the UK the most open and dynamic financial centre in the world [and] reduce burdens for firms whilst maintaining high standards of regulation”. Separately, entrepreneur Brent Hoberman writes in the FT that a shake-up of UK rules for listed companies is long overdue.

Government has ‘no plans’ to reduce Lifetime Isa withdrawal penalty

The Government has said that savers who need to raid their Lifetime Isa pot will soon be charged their own money to do so again to “discourage withdrawals” and “protect its status as a long-term savings product”. The Government said the penalty for withdrawing money from the tax-free account would be increased back up to 25% from 6 April and that it had “no plans to permanently reduce this charge to 20%”. Nathan Long, an analyst at DIY investment platform Hargreaves Lansdown, said: “Given the nation seems to be steeling itself for anticipated job losses as furlough unwinds, the case for the reduced penalty must surely be as strong now as when they first signed off on it.”

British American Tobacco

British American Tobacco  said it has entered a “strategic” collaboration with Organigram Inc focused on research and product development activities of adult cannabis products. Organigram Inc is a wholly-owned subsidiary of Canadian cannabis producer Organigram Holdings Inc. Under the terms of the transaction, a BAT subsidiary will acquire just under a 20% stake in Organigram Holdings to become the largest shareholder, with the ability to appoint two directors to its board.

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