Four in 10 UK companies expect that their annual trade with the European Union (EU) will fall in the coming year in comparison to pre-pandemic levels, new research has shown.
According to figures from the Institute of Directors (IoD), which surveyed 738 directors who are actively trading with the EU or have temporarily suspended trade, more than one-third anticipated no change over the year ahead. However, one in five believed that trade would increase.
The survey, which was conducted between 19 April and 10 May, also found that some 60% of British firms are still finding it challenging to adjust to new trading arrangements brought on by Brexit.
Britain's exit from the European Single Market on 1 January 2021 led to new trading rules with the EU that slowed the movement of goods and left some businesses struggling.
Customs changes, and the new non-tariff barriers across goods and services trade were cited among the biggest obstacles, the IoD said. These difficulties have also been exacerbated by the ongoing coronavirus pandemic.
During the first quarter of this year, a number of firms were treading water as restrictions lingered. Now that the UK economy is reopening, many are evaluating whether it remains viable for them to trade with the EU.
Watch: What is a credit rating and why does it matter?
It comes after the Institute published a report last week to set out a roadmap for cooperation between the UK and EU on a positive long-term global trade agenda. It argued that there is an urgent need to stabilise relationships with the EU to support traders.
“It has been a tumultuous time for UK firms with EU customers and supply chains. The double whammy of the pandemic and the costs of adjusting to new trading arrangements is likely to dampen trade with the bloc over the coming year at least,” Tej Parikh, IoD chief economist, said.
“Smaller traders have come through the past year with damaged balance sheets, and are currently finding it harder to justify the additional time and cost expended in exporting and importing across the channel.
“Many organisations are still getting their heads around customs changes and new non-tariff barriers. Snags in global supply chains and high shipping costs are also complicating things.”
Parikh also called on the UK government to do more to help traders, including widening support through schemes such as the SME Brexit Support Fund.
Earlier this month the Office for National Statistics (ONS) revealed that imports of goods from the rest of the world in the first quarter of 2021 were higher than EU imports for the first time since it began collecting data in 1997.
Trade with the EU fell by £18.4bn ($26bn) in the first three months of the year. Economists and analysts said it was unclear whether the shift would be permanent.
"With only one quarter of data available, and the ongoing pandemic and recession, it is too early to assess the extent to which this reflects short-term trade disruption or longer-term supply chain adjustments," the ONS said.
Many UK businesses also stockpiled goods at the end of 2020 for fear of disruption around the Brexit deadline, which also led to lower demand for imports at the start of the year.
Watch: What are freeports?