Brexit and the impact of new trade ties on the UK outlook – ING Think

Manufacturing production has likely fallen

The ONS Business Impact survey from mid-December indicated that half of manufacturers were only somewhat prepared, or not at all. And across the economy, a high proportion of firms reported the changes werent relevant to their business - which in some cases may have been because they weren't fully aware of the forthcoming changes.The chart above showed this tended to be more common among smaller businesses.

One thing that looks inevitable is a fall in manufacturing production in January - perhaps in the region of 3-4%, and things may become worse in the short-term

That said, its a mistake to assume this is only hitting smaller firms.While in general larger firms are likely to have been better prepared, many rely on SMEs as part of their supply chain. That was demonstrated in December when some of the major carmakers had to pause production amid a lack of supplies coming across the Channel.

In short, the situation is fairly bleak, but working out the magnitude of the impact on the wider economy is less straight forward.

One thing that looks inevitable is a fall in manufacturing production in January - perhaps in the region of 3-4%. Thats partly because the situation is unlikely to resolve itself quickly - and in fact may become worse in the short-term as border traffic builds up once again. Net trade is also likely to weigh on GDP through this year, assuming imports recover as lockdowns are unwound but exports take much longer to recover.

Of course it goes without saying that theCovid-19 crisis will dominate the GDP figures for the next few months. But assuming the economy starts to get back on its feet through the middle of 2021, the more interesting question is how Brexit will affect the recovery - and here are threefactors to bear in mind.

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Brexit and the impact of new trade ties on the UK outlook - ING Think