The first 100 days of Brexit: the search for a new economic paradigm continues

The first 100 days of life outside the EU already provide a glimpse of the practical challenges facing UK corporates & investors, and raise one all-important question: what is the UK’s longer-term economic vision? Ross Walker provides his quick take here.

Trade frictions are showing

As the chart below shows, UK trade in goods with the EU fell heavily in January 2021 (-34.4% month-on-month) with only a partial recovery in February (+20.2%), leaving trade with the EU down a whopping 24% on pre-Brexit levels. Some of this hit relates to renewed pandemic restrictions and stockpiling ahead of the end of the Brexit transition period on December 31st. But UK trade with the EU fell significantly more than it did with the rest of the world (-6.5% in January and +2.5% in February).

UK trade: average of export & import values, excluding oil & erratic items (January 2020 = 100)

Sources: UK Office for National Statistics

Trade frictions appear to be more serious than was envisaged at the time the EU-UK trade deal was signed. Rules of Origin requirements are raising administrative burdens and costs for businesses, highlighting, for many, the need to strengthen supply chains & review export strategies. The disruption facing larger firms may have more damaging longer-term consequences if supply chains need to be restructured to bypass the UK.

Frictions around trade between Great Britain and Northern Ireland have boiled over at times. Northern Ireland’s customs and regulatory alignment arrangements are complex and clearly create economic borders within the United Kingdom. 

Towards a longer-term vision

We remain firmly of the view that the economic consequences of Brexit will only be apparent over longer periods of time – a decade rather than a few months. Increased frictions are already apparent despite being overshadowed by the pandemic. Whilst manageable, trade frictions are real and seem likely to reduce business investment expenditure over time, impair productivity and slow economic growth. Most independent studies suggest Brexit will lower UK economic growth over the next decade or so by 0.25-0.5% per year – which is actually quite significant when compounded over time.

All of this begs one important question: what should the UK’s long-term economic vision be? And related to that: what should the strategy that helps achieve it look like? There have been some notable individual initiatives – in green finance for example – but nothing that could be regarded as comprehensive. The March 2021 Budget, which in the wake of record peacetime fiscal spending pencilled-in significant tax rises from 2023 – for both corporates and households – makes it difficult to imagine the UK becoming a low-tax ‘Singapore on Thames’ in the way some had envisaged. At the same time, there is scant evidence of any great progress on trade deals with third countries beyond rolling over pre-existing EU arrangements.

Services – where the UK’s long-term economic vision needs firming up

As we wrote shortly after its conclusion, the EU-UK trade deal is a de facto ‘no deal’ for services.  Save limited provisions for airlines, hauliers, and telecoms providers, much of the service sector remains in a sort of regulatory no-man’s land.

In March 2021, a memorandum of understanding to create a ‘Joint UK-EU Financial Regulatory Forum’ was reached. Whilst this might conceivably morph into a body which facilitates greater financial market access, it remains nascent at this stage. Financial services equivalence isn’t likely any time soon. At the same time, the Bank of England Governor has made clear his view that the UK cannot be a rules-taker from Brussels on financial services and has questioned EU demands for the relocation of personnel and operations.

Such regulatory tensions are unlikely to disappear any time soon, but given the country’s heavy economic reliance on services in general (and its specialisation in financial services, specifically) they need to be overcome if the UK is to consolidate & put forward a credible long-term economic vision.

For questions on this article, get in touch with your NatWest Corporates & Institutions representative or contact us here.

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (, a SIPC member ( and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright 2022 © NatWest Markets Plc. All rights reserved.

scroll to top