International businesses have been preparing for Brexit while carefully watching updates regarding the coronavirus pandemic and slow economic recovery. On Friday, news that the UK borrowed a record of £35.9bn in August, with borrowing since August hitting £173.7bn, while factory output dropped 44% last month, have added to concerns of a weakening economic recovery.
Importers and Exporters Facing New Customs Controls
UK cabinet minister Michael Gove, in a letter to logistics groups, has already stressed the government's analysis in regards to the potential disruptions that could affect importers and exporters once the Brexit transition period ends.
The cabinet document stated that queues of up to 7,000 trucks might form in Kent, resulting in two-day delays in the worst possible scenario. The document also said that, "Irrespective of the outcome of negotiations between the UK and EU, traders will face new customs controls and processes. Simply put, if traders, both in the UK and EU, have not completed the right paperwork, their goods will be stopped when entering the EU and disruption will occur."
On a more general note, but equally worrying, reacting to Brexit, JPMorgan has decided to move $230 billion in assets from London to its Frankfurt-based subsidiary in Germany.
UK Borrowing Increases, as Car Production Drops
Britain’s economy has been terribly hit by the Covid-19 pandemic as it was announced on Friday. The government borrowed £35.9bn last month according to the Office for National Statistics. The UK has now borrowed £173.7bn since the start of the financial year in April, as a result of the pandemic. August’s borrowing has pushed the UK’s national debt to £2,023.9bn, and the ONS estimates that UK borrowing could exceed £372bn for the current financial year.
The ONS says the increase in borrowing was caused by a fall in tax receipts, and the ongoing cost of protecting the economy. Central government tax receipts are estimated to have been £37.3 billion in August 2020 and central government bodies are estimated to have spent £78.5 billion on day-to-day activities (current expenditure) in August 2020. Britain can borrow at record lows and the Bank of England is prepared to expand its bond-buying QE programme (currently £745bn) if it is deemed necessary.
According to the Financial Times’ Chris Giles, today’s borrowing figures, do not include expected government costs: “The UK’s public finances have continued on a path towards a record peacetime deficit in 2020-21, with the central government borrowing £221.2bn in the first five months of the financial year to combat the coronavirus pandemic. Although that figure was lower than the Office for Budget Responsibility, the fiscal watchdog, had expected, the official statistics are yet to incorporate expected losses on government-backed loans to companies and £24bn of new spending for the NHS, vaccines and coronavirus testing the Treasury revealed on Thursday. The £221.2bn central government cash requirement between April and August was 11 times greater than the highest ever cash borrowing figure at this point in the financial year since equivalent records began 36 years ago.”
August’s borrowing reflects higher spending to tackle the coronavirus pandemic as over £10bn was spent on the retention and self-employment schemes in August.
Car Manufacturing Falls
Additionally, UK car manufacturing declined -44.6% in August with the ongoing coronavirus crisis making efforts to increase output more difficult as demand overseas has weakened. Production this year is down -40.2% with a loss of 348,821 units.
The Society of Motor Manufacturers and Traders has reported that the UK car manufacturing fell 44% last month compared with August 2019. Factories’ exports and domestic orders fell dramatically.
Mike Hawes, SMMT chief executive, said: “These are increasingly disturbing times for UK car makers and suppliers with the coronavirus crisis weighing heavily on the sector. Companies are bracing for a second wave with tighter social and business restrictions making the industry’s attempts to restart even more challenging.”
Are you a Business Transferring Funds Abroad?
If you are an exporter or importer and worried about your international trade costs, and the volatility of the British pound, you should get professional assistance when transferring funds abroad. Get in touch with Universal Partners FX to find out about efficient risk management and tailored solutions to your business’s transfer needs.