The UK economy contracted 2.9% in January, with UK exports to the European Union falling 40.7%. While the UK economy shrank less than expected, trade with the European Union falling sharply is a result of the Brexit transition period at the beginning of the year.
"The economy went into reverse in January with the services sector predictably taking the bulk of the hit as strict UK Covid restrictions continue to bite," said Samuel Indyk, senior analyst at uk.Investing.com . "GDP remains 9% lower than in February 2020 but the decline in output this month was noticeably smaller than the first lockdown as consumers and businesses adapt to the measures. And notably, there is light at the end of the tunnel with over 23 million citizens given at least one dose of the coronavirus vaccine.
"UK exports to the EU tumbled in January, with Brexit clearly causing problems and adding to costs for businesses," Indyk continued. "However, much of the decline was unwinding of stockpiling in November and December as businesses prepared for the end of the transition period on January 1st. We can assume that Brexit has had an impact but trade has not been normal over the recent months and judgement cannot be made on the trade deal until some of the temporary factors dissipate."
Worryingly for the UK, a rising number of businesses are also devising new supply chains to avoid the costs induced by Brexit.