Brexit and Corona lockdown weigh on British economy


Despite progress on vaccination and the prospect of opening up, the British economy has shrunk. According to statisticians, economic output is 8.7 percent below pre-crisis levels.

The British economy suffered significant losses in the first quarter. Gross domestic product fell by 1.5 percent from January to March compared with the previous quarter, according to the statistics office in London. In the final quarter of 2020, there had still been growth of 1.3 percent. Economic output is still 8.7 percent below the pre-crisis level of the fourth quarter of 2019, according to the statisticians, which is the last quarter in which the Corona crisis has not yet affected growth figures. Compared with the first quarter of 2020, when the pandemic spread to Europe, economic output contracted by 6.1 percent.

The economy was burdened not only by the third Corona shutdown, but also by Brexit. The trade and cooperation agreement with the EU, which was only negotiated at Christmas, has been in force since the beginning of 2021 and entails numerous changes and often greater bureaucracy for companies.
In 2020, the British economy had slumped by almost ten percent due to the Corona crisis – twice as much as the German economy. The International Monetary Fund (IMF) expects a comeback: this year, gross domestic product is likely to grow by more than five percent.

Problems with customs declarations
The German business community is also optimistic about the future in the UK. “Overall, there is a positive mood among companies that things are now looking up,” said the head of the German-British Chamber of Industry and Commerce (AHK), Ulrich Hoppe. It is also important for the psychology in the economy that the easing process announced by the government continues to progress according to plan, Hoppe said, referring to the lifting of Corona measures in the UK.

For example, pubs and restaurants will be allowed to open their indoor areas from May 17, and foreign travel to some countries will also be permitted again. “The money, some of it saved, that the British were unable to spend is now ensuring increased consumption,” Hoppe said. He added that the willingness to invest is also on the rise again among companies. Nevertheless, “companies do not expect a full recovery, even for the economy, until the end of 2022,” Hoppe said.

He added that the full extent of the Brexit is also unclear. Logistics companies, for example, would have problems because of new requirements such as customs declarations. For this reason, the British government had postponed the completion of all customs formalities until January 2022. On the EU side, however, all formalities are already in place.

Many points of the Brexit agreement have not yet been fully implemented due to the pandemic and the resulting travel restrictions, said Hoppe. Because freedom of movement is being eliminated between the EU and the U.K., visas are now required in many cases for cross-border services. “A lot of things will become much, much more difficult. Some things will also become impossible.”


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