Britain's productivity problem surfaces again

In a warning about what to expect from Brexit, Aston University's Lloyd’s Banking Group Centre for Business Prosperity have been looking at Britain's recent export performance to the end of last year.  Every country has been impacted by covid in 2020 but we seem to have been impacted more than others. Their report uses UN trade figures and looks at how we managed in some key markets. This is in the USA, China and Germany, vital markets if we are to aspire to become 'Global Britain'. It has not been a good springboard for Brexit as we shall see below.

The reports says that overall UK goods exports fell by almost 15% in 2020, a reduction of £54.5 billion, while our GDP contracted by just under 10%. An international comparison depicts similar sharp declines among the UK’s peers, but the statistics suggest that UK had a "deeper decline and slower recovery, compared with Germany, Italy, Spain and the US."

What researchers found is that in the German market for example, between 2017 and 2019 the UK increased its exports by 8.5% but this was less than other countries manage. Italy raised its exports to Germany by 12%, the Netherlands by 14%, Spain by 20% and the United States  by a whopping 24%.  In other words we were struggling even before covid.

In 2020, exports to the EU and North America, saw falls of 18.8% and 16% respectively and in three key export destinations – Germany, the US and China - the UK seems to have suffered a sharper decline, experienced slower recovery, and might have failed to grasp emerging market opportunities, the report says.

They add:

"Extending our analysis to the three years prior to 2020, we find that the weakening of the UK’s global competitiveness may be a more longstanding development, for its slow growth in the main products and key markets are widely recognisable relative to its competitors. This suggests that it may be too optimistic to expect that a fast and full recovery is in sight.

"We argue that the fundamental causes of the UK’s dismal trade performance in the recent past go beyond trade itself. The long-term stagnation in productivity growth is the key reason for the subdued competitiveness of the UK economy. Notwithstanding the country’s world-leading scientific institutions, this has resulted in a lack of competitiveness in producing new goods and services in this country and, by extension, an inability to be more resilient to changes and to exploit opportunities in a crisis like COVID."

I am afraid this is all too familiar to me after a lifetime visiting factories across Europe and in many different industries.

But remember, this is all up to the end of 2020. It takes no account of the huge changes in our terms of trade with the EU. A few days ago the UK Statistics Authority rebuked the Cabinet Office and Michael Gove for using what they called "unpublished and unverifiable data" in an attempt to deny that Brexit had caused a massive fall in volumes of trade through British ports.

This was a clumsy attempt to counter a survey by the Road Haulage Association (RHA) of its international members showing export volumes had dropped by a staggering 68% in January through British ports and the Channel Tunnel.

Now the French customs authority confirms trade in January was markedly down according to the FT.

"French exports to the UK were down 13 per cent in January compared with the average of the previous six months, while French imports from the UK fell 20 per cent, according to the French customs office. 'Trade with Britain is disrupted due to Brexit,' it said."

"German exports to Britain in January were down about 30 per cent year on year, continuing a trend of declining trade between the two countries since the Brexit referendum in 2016, according to figures released by the federal statistical agency this week.

"Separately, Italy last month reported a 38 per cent year-on-year drop in exports to the UK and a 70 per cent drop in British imports in January — both much steeper declines than those with other countries."

Note our exports fell by more than our imports in every case. So much for them needing us more than we need them.

No doubt some of this will be due to stockpiling before Christmas but Brexit won't solve the medium and long term problems which go much deeper and are more chronic.

The Aston University report says:

"...considerable post-Brexit challenges lie ahead for UK businesses, threatening the chances of a full and fast recovery from the pandemic and putting even more pressure on the UK’s trailing position in productivity terms. It is anticipated that the combination of COVID, Brexit and the UK’s long-term productivity challenges will put British businesses in an adverse position for the foreseeable future."

This Friday we get the first official 2021 GDP figures released and they will make grim reading I'm sure.  One of the reasons other countries - certainly Germany - bounced back more quickly is the sheer amount of automation they have invested in. Robots don't catch covid-19 and you can keep a plant running with social distancing quite easily when you have just a few maintenance technicians and the odd operator.

In the UK it's not unusual to walk in to a factory and think you've stumbled onto the set of a remake of El Cid. There are so many people manually filling containers and stacking things you can hardly see the plant at all.

If you were ever to make a success of Brexit, the best thing would have been to spend twenty years boosting productivity and investment so we had an economy to stand alongside Germany's without being embarrassed.

Politicians have a touching faith in Britain's 'world-beating' industry being held back by Brussels regulations. That theory is going to be tested to destruction this year. We are only at the beginning.