Half of UK Businesses Report Supply Chain Disruptions as EU Trade Rules Bite

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Half of UK businesses indicate that they experienced supply chain disruption in February, according to the March release of the Lloyds Bank Business Barometer.

The report says as a result of supply chain disruptions companies are more likely to raise their prices in the coming year: 46% expect to do so, compared with 27% of firms citing no supply chain issues.

The findings raise concerns that UK inflation rates are likely to rise sharply over coming years, which will likely prompt markets to pull forward the expected date of the first Bank of England interest rate hike.

The report reveals 70% of firms that both import and export have been affected by supply chain problems.

This is also higher for firms that only import (59%) and only export (49%).

In contrast, about a third of firms that only trade domestically (neither import nor export) experienced supply chain difficulties.

Border controls & customs were cited as a key concern by companies of all sizes and sectors as a reason for the disruptions.

Rules of origin & VAT were cited by 31% of manufacturers as a source supply chain disruption, a clear indication that new post-Brexit rules have had an impact on activity in early 2021.

"Companies that engage only in exports experienced particular issues with rules of origin & VAT requirements," says Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking. "Businesses that both import and export are the most likely to report supply chain issues."

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He adds that 72% of such firms report disruption to their supply.

The Business Barometer reports firms that engage in cross-border trade are more likely to indicate that they expect to raise their prices in the next twelve months.

46% of companies that only import expect to increase the price of their goods or services, with the figure at 42% for firms that both import and export.

The proportions are lower for firms that only export (34%) and only trade domestically (31%).

The disruption to cross-border trade following the ending of the Brexit transition period has been well documented, but by mid-February there were signs the situation was improving as firms began to adapt to the changes.

The rejection rates being reported by those exporting goods into the EU via the French border fell substantially by mid-February, according to Transporean, a logistics facilitator and data provider.

The developments, if sustained, could mean the outlook for UK cross-border businesses will improve.

"Market players are slowly adjusting to the new circumstances," Transporean told the Bloomberg newswire at the time.

However, the grace period for EU companies exporting to the UK will end in April, meaning a fresh set of challenges will arrive.

However on Sunday, The Observer reported that the government could delay or modify the new controls in response to food and hospitality industry concerns.

A government spokesman told the BBC: "When he took up his new role, Lord Frost requested a review of the timetable for import controls and its impact on businesses, but no decisions have been made".