Impacts of the coronavirus on UK trade: December 2020

• The coronavirus (COVID-19) pandemic impacted upon UK trade in services, which saw falls in both imports and exports of £16.7 billion (31.8%) and £14.9 billion (18.5%) respectively in Quarter 2 (Apr to June) 2020, when compared with Quarter 2 2019.

• The fall in services was largely seen in travel and transportation services; these trends are consistent with travel bans, global lockdowns and the requirement to work from home where possible.

• The easing of some coronavirus restrictions increased imports and exports of trade in goods in Quarter 3 (July to Sept) 2020, when compared with Quarter 2 2020.

• Excluding non-monetary gold and other precious metals, goods imports and exports increased £16.6 billion (19.0%) and £14.1 billion (21.9%) respectively in Quarter 3 2020.

• Findings from the Business Impact of Coronavirus Survey (BICS) showed that businesses are reporting fewer challenges from the impacts of coronavirus in Quarter 3 2020; the rolling back of public health measures in June appears to have had a positive effect on global trade flows.

This article provides evidence of the impacts of the coronavirus (COVID-19) pandemic on UK trade. As widely expected, the restrictive measures introduced by many countries have disrupted global trade flows. Our analysis highlights the magnitude of this impact and provides vital insight into the nature of the impact on trading businesses.

Evidence for the impacts on trade in services covers the early impacts of the coronavirus on Quarter 2 (Apr to June) 2020 while the UK was in lockdown and restrictions on travel remained in place. Trade in services therefore saw significant falls in imports and exports when compared with Quarter 2 2019, specifically in transportation and travel services, as well as falls in the exports of other business services.

Evidence for the impacts on trade in goods covers the later impacts of the coronavirus on Quarter 3 (July to Sept) 2020, following the UK’s transition out of lockdown and the easing of some restrictions. Trade in goods therefore saw increases in imports and exports when compared with Quarter 2 2020, specifically in machinery and transport equipment, miscellaneous manufactures and material manufactures. Despite the recovery, levels are still not as they were pre-COVID.

Evidence from UK business indicates that businesses have become increasingly resilient to the coronavirus pandemic. Businesses appear to have improved their trading ability, whilst reporting that they have experienced significantly fewer challenges to both exporting and importing. As widely expected, the rolling back of public health measures in the summer appears to have had a positive effect on global trade flows. What cannot be established is what proportion of improvements have been driven by firms becoming better at adapting to COVID-19 and related restrictions, simply the re-liberalisation of global markets in summer 2020. We also see evidence of the negative outcomes of heavily affected sectors crossing markets and indirectly affecting other less affected sectors.

Our trade statistics reflect the continuing impacts of the coronavirus (COVID-19) pandemic on UK trade. The introduction of global restrictive measures to combat the coronavirus pandemic began from January 2020 onwards in China. National lockdown measures began in the UK in March and included rigorous social distancing, the closure of businesses and travel bans. Most countries worldwide also introduced trade-related measures, including temporary export bans and the elimination of import tariffs on certain commodities. However, lockdown measures in the UK were relaxed in June, as infection rates were decreasing.

The easing of restrictions in June increased demand and allowed many more businesses to increase output or resume some level of trading. Trade in goods therefore made some recovery in Quarter 3 (July to Sept) 2020 compared with Quarter 2 (Apr to June) 2020, however, exports and imports were not at pre-COVID levels. Trade in services in Quarter 3 2020 has not yet seen a similar increase to trade in goods exports and imports. Because of the lag in granularity of trade in services data, this article will focus on Quarter 2 2020.

This section on trade in services covers Quarter 2 (April to June) 2020 to reflect the most recent granular service data available. Comparisons are made against Quarter 2 2019, to reflect non-seasonally adjusted changes in year-on-year trade. Data for Quarter 2 2020 suggest that trade in services was severely impacted by the coronavirus (COVID-19) pandemic. Trade in services saw falls in both imports and exports of £16.7 billion (31.8%) and £14.9 billion (18.5%) respectively when compared with Quarter 2 2019 (Figure 1).

When firms were surveyed for Wave 8 of the Business Impact of COVID-19 Survey (BICS), 46.1% of respondents said they were exporting less than normal and 38.4% said they were importing less than normal. However, not all trade was impacted equally and some service types saw greater impacts than others.

The services types most affected by coronavirus restrictions were those impacted by lockdown measures and social distancing, for example, travel, which includes personal holidays and business travel. Subsequently, falls in imports and exports were largely seen in travel and transport services, and falls in exports in other business services (Figure 2). These falls coincide with the implementation and extension of travel bans, reduction in public transport services and the recommendation to stay at home where possible.

Restrictions on travel introduced in response to the pandemic significantly affected global tourism, with an 81% drop in international arrivals in July 2020. Total travel imports, which includes travel from the UK to abroad, decreased by £12.5 billion (89.3%) in Quarter 2 2020 when compared with Quarter 2 2019. Imports from EU countries saw the largest fall, decreasing £7.7 billion (89.3%) in Quarter 2 2020, largely driven by falling imports of £2.5 billion (89.1%) from Spain and £1.2 billion (89.2%) from France; two popular summer holiday destinations (Figure 3). The addition of both countries to the quarantine list reduced travel, as travellers had to quarantine on their return.

Business travel also saw large declines in Quarter 2 2020, as many companies moved to virtual conferencing, and video conferencing companies such as Zoom saw large increases in sales. Total travel exports, which include travel to the UK from abroad decreased by £7.3 billion (71.2%) compared with Quarter 2 2019.

Transportation services, which include sea transportation and air transportation, saw declines in imports and exports in Quarter 2 2020. Transportation imports and exports fell by £4.0 billion (53.3%) and £2.5 billion (33.7%) respectively when compared with Quarter 2 2019. Falls in imports were driven by a £3.8 billion (79.7%) decrease in air transportation, particularly air transportation imports from Ireland, which fell by £1.5 billion (83.4%).

The public health policy response of the UK and its trading partners has driven declines in both imports and exports in transportation services as restrictions have often focused around restricting movement. When responding to Wave 8 of the BICS, the highest proportion of firms who reported that they were exporting and importing less than normal were in the transportation and storage industry, at 65.5% and 45.0% respectively (Figure 4a; Figure 4b). This is likely because of the airline industry suffering as a result of travel restrictions.

Firms in the transportation and storage sector reported that coronavirus-related transport restrictions presented challenges for both importing and exporting (Figure 5), however, other challenges were often also cited. Challenges in the transportation and storage sector were also more mixed than in other sectors, for example, the education sector. Challenges in the education sector were dominated by reports of coronavirus-related transport restrictions for exporting (50.0%) and importing (41.2%). The second-highest challenge reported was increases of transportation costs for exporting and importing, at 10.0% and 5.9% respectively.

Sectors where firms themselves have seen increased trade activity have been seen most notably within human health and social work; 36.4% of firms surveyed responded that their imports had increased. Demand for health services has increased as a response to the pandemic.

Exports of other business services, which include advertising and other technical and research services, also saw large falls. Exports fell by £5.0 billion (16.8%) between Quarter 2 2019 and Quarter 2 2020. The decline in exports of other business services was driven by a £1.8 billion (51.5%) fall in exports of architectural, engineering, scientific and other technical services, and a £1.2 billion (44.2%) decline in advertising, market research and public opinion polling. Falls in advertising exports were driven by a £0.8 billion (46.2%) fall in exports to EU countries. Advertising budgets in the UK were reduced to their lowest ever level since data collection began 20 years ago. With the coronavirus restrictions prohibiting large gatherings and live events, funding for events marketing saw the largest decline.

Falls in architectural, engineering, scientific and other technical service exports were driven by a £1.5 billion (53.4%) fall in exports to non-EU countries, with a £0.4 billion (59.0%) fall in exports to the United States. According to a Royal Institute of British Architects (RIBA) survey, 79% of architectural firms experienced project delays, 61% experienced site closures and 37% experienced project cancellations as a result of the pandemic.

Architectural services are linked with construction services, and a decline in one can cause a decline in the other. Construction exports were £0.7 billion (61.7%) lower in Quarter 2 2020 than Quarter 2 2019, falling from £1.1 billion to £0.4 billion. The coronavirus pandemic caused supply chain backlogs, a halt to planning and inspection timetables, and new measures to ensure the health and safety of the workforce. Construction firms surveyed as part of the BICS reported that 52.9% of firms had their exports reduced. However, construction imports increased £0.2 billion (32.5%) in Quarter 2 2020 compared with Quarter 2 2019. When surveyed as part of the BICS, 74.5% of construction firms reported no impact on their imports. This indicates domestic demand had not been as adversely affected as demand for exports.

Insurance and pensions has generally seen increases in imports and exports in Quarter 2 2020 when compared with Quarter 2 2019, contrary to the trend of other services. Total exports increased by £0.3 billion (5.9%) and total imports by £0.1 billion (20.6%) when compared with Quarter 2 2019. Insurance companies saw increases in the demand for travel insurance policies because of the heightened risk surrounding flight cancellations. In the early stages of the pandemic, insurance comparison site Go Compare experienced a 277% increase in sales of travel insurance.

This section on trade in goods covers Quarter 3 (July to Sept) 2020 to reflect the most recent goods data available. Comparisons are made against Quarter 2 (Apr to June) 2020, to reflect seasonally adjusted quarterly changes in trade and analyse the recovery from the impacts of the coronavirus (COVID-19) pandemic seen earlier in the year. Information on the impacts of coronavirus for trade in goods in Quarter 2 2020 is available. Lower-level commodity breakdowns are non-seasonally adjusted.

The implementation and subsequent easing of coronavirus restrictions had an impact on the importing and exporting of goods among the UK’s top trading partners. Goods imports and exports, excluding non-monetary gold and other precious metals, increased by £16.6 billion (19.0%) and £14.1 billion (21.9%) respectively since Quarter 2 2020. Imports and exports are therefore recovering since the beginning of the coronavirus pandemic but are not yet back at pre-coronavirus levels (Figure 6).

The increase in goods imports and exports was driven by increases in machinery and transport equipment, and lesser increases in miscellaneous manufactures and material manufactures. Data do not reflect the impacts from any further local or national lockdowns introduced beyond September 2020. We are likely to see the impacts of re-implementation of lockdown in data for Quarter 4 (Oct to Dec) 2020.

A full, direct and comprehensive comparison between Quarter 2 2020 and Quarter 3 2020 is not yet possible with BICS data. A full explanation is available. However, what we can see across “waves” is that there appears to be a general and steady improvement in both trading outcomes, as fewer respondents reported facing challenges in importing and exporting.

Exports of machinery and transport equipment increased by £8.5 billion (38.2%) in Quarter 3 2020. This increase in exports was driven by an increase in the exports of road vehicles, specifically cars. Exports of cars increased by £4.3 billion (251.0%) in Quarter 3 2020. This was driven by a £3.1 billion (285.1%) increase in exports to non-EU countries, with a £0.9 billion (339.6%) and £0.9 billion (261.3%) increase in exports to the United States and China respectively.

In Quarter 3 2020, demand for UK cars rose because of pent-up demand as dealerships reopened globally. Exports to the United States were hit particularly badly, dropping 30.0% as the country has the ongoing highest number of coronavirus cases in the world. However, total vehicle sales and foreign vehicle sales in the United States have increased from April 2020 and have almost reached pre-coronavirus levels.

The coronavirus pandemic had a particularly big impact on the car industry as it is heavily embedded into the global supply chain. Despite increases in exports seen in Quarter 3 2020, in comparison with a year earlier, exports saw a big decline of 9.7% to 87,533 vehicles as overseas markets are still seeing impacts of coronavirus. This reflects the decline in production as factories closed during the initial lockdown period.

When responding to Wave 14 of the BICS, the manufacturing sector reported less impact on their ability to export than more service-based industries, as over half reported no impact. Most impacted were education, and human health and social work, where 52.0% and 50.0% respectively had their export business affected (Figure 7). The proportion of transport and storage firms who saw reduced exports has fallen since Quarter 2 2020, from 65.5% to 42.0%. Firms in the information and communication sector were less likely to report reduced exporting as a result of the coronavirus (Figure 8).

Imports of machinery and transport equipment increased £9.8 billion (36.1%) in Quarter 3 2020 when compared with Quarter 2 2020. This increase was also driven mostly by increases in imports of cars. Imports of cars increased £4.2 billion (155.0%) in Quarter 3 2020. This was driven by a £3.7 billion (166.7%) increase in imports from EU countries, with a £1.9 billion (213.4%) increase in the imports of cars from Germany (Figure 9).

Increases were likely because of the reopening of some car dealerships as the coronavirus restrictions eased from June onwards and the build-up of demand in this period. There were 328,041 new car sales in September 2020, just 4.4% below September 2019. This shows a vast improvement from June 2020, in which new car sales were 34.9% below year-on-year sales. The new UK 70-plate, model upgrades and attractive offers for customers have also contributed to increases.

Demand for transport equipment is mostly made up of derived demand for travel. The easing of restrictions and subsequent increase in travel over the summer therefore contributed to the increase in exports and imports of machinery and transport equipment.

Imports and exports of miscellaneous manufactures increased by £7.4 billion (61.3%) and £3.7 billion (44.4%) respectively in Quarter 3 2020. The increase in imports was mainly driven by a £3.4 billion (119.3%) increase in the imports of clothing, with a £1.3 billion (194.8%) increase in clothing imports from China (Figure 9). There was also a lesser increase in imports of footwear and works of art. This is likely because of the increased demand for online retail and post-coronavirus pent-up demand.

Since April 2020, clothing and footwear stores have seen a gradual increase as shops re-opened on 15 June 2020. The rise aligns with UK retail data, which saw retail sales rise in Quarter 3 2020.

More significantly, the coronavirus has caused shift to online retail, which has seen growth in sales as non-essential shops were closed in the lockdown period. Online sales especially rose: the proportion of all online sales was at 27.5%, compared with 20.1% reported in February.

At the time the virus struck, large numbers of shipping containers were in Chinese ports, and restrictions on their movement led to a shortage. China records that the long-term economic impact of the coronavirus in China was smaller than the global average, as China controlled the outbreak, loosened restrictions and reopened its economy quickly. However, there is some scepticism over the accuracy of Chinese data. In Quarter 3 2020, 63.9% of firms in the manufacturing industry reported that there was no effect on their importing business. This has increased from 51.3% in Quarter 2.

The manufacturing industry reports increased transportation costs as the most often cited challenge at 11.9% when exporting and 11.0% when importing (Figure 10). The transportation and storage industry has seen reduced demand, and this may be expressed as price rises, likely caused by a contraction in demand and a contraction of supply caused by restrictions. This effect damages the ability of manufacturing to export and import.

BICS

The Business Impact of COVID Survey.

Granular(ity)

Lower level, more specific data.

Un-weighted

BICS data that have not been adjusted to become more representative of the total population.

Non-monetary gold

Non-monetary gold covers exports and imports of all gold not held as reserve assets (monetary gold) by the authorities. Non-monetary gold is treated as any other commodity and, when feasible, is subdivided into gold held as a store of value and other (industrial) gold.

This article presents UK trade data analysis for trade in services for Quarter 2 (Apr to June) 2020 and trade in goods for Quarter 3 (July to Sept) 2020, reflecting the most up-to-date data that are available. It also includes evidence from businesses responding to Wave 8 and Wave 14 of the Business Impact of Coronavirus (COVID-19) Survey (BICS), which is designed to capture economic-based information from businesses who are currently trading. BICS provides a useful insight into some of the underlying causes of the movements in trade outlined in this article regarding the impact of the coronavirus (COVID-19) pandemic and the main challenges faced by responding UK businesses. Recent high-level information on UK trade is also published monthly in our Trade bulletin.

For analysis of BICS, we have used “waves”, which cover a fortnightly period, to approximate entire quarters. Wave 8 (15 to 28 June), acts as an approximation for Quarter 2 2020, and Wave 14 (7 to 20 September) approximates Quarter 3 2020. Findings from these “waves” are best seen as snapshots in time. To avoid the effect of firms not normally trading internationally, Wave 8 data will be from firms who have imported or exported in the last 12 months and have exported or imported during COVID-19. Wave 14 data will be from firms who have imported or exported in the last 12 months to avoid the effect of firms who do not trade internationally in normal times.

It is worth noting that UK trade has seen challenges with data collection because of social distancing measures as a result of the coronavirus. These have largely impacted both the International Trade in Services (ITIS) Survey and the International Passenger Survey (IPS). Further detail on the challenges and the measures we have taken can be found in Section 11 of the UK trade release published 12 November 2020.

UK trade data unless stated are in current prices, meaning they have not been adjusted to remove the effects of inflation. More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the UK trade QMI.