HAMISH MCRAE: Leaving the EU marks a bright new dawn for local trade

A New Year, the end of a 48-year-old relationship – and most important of all, the start of a new adventure. So what will happen in the days ahead?

Think of the economic impact of leaving the European Union in three ways: the relief bounce, the switch to local, and the wide blue yonder.

The bounce that followed the trade deal has been obvious in the markets, in particular the climb of the pound against the dollar.

We will see more of that in the coming weeks, though it will take a long time for the UK to become a fashionable place for international portfolio investment after all the adverse publicity of recent months.

The disruption from the pandemic will deepen and we will be lucky if we get away without trouble at the ports.

But there will be a swift bonus in that businesses that delayed investment projects until they knew the outcome of the trade talks will now go ahead. Expect a string of announcements in the coming weeks.

A bounce, however welcome, is just a bounce.

The switch to local will be more long-lasting and will, I think, lead to a fundamental change of direction for the economy.

The trade deal allows the UK to export freely to Europe and Europe to export freely to the UK. But there will be bureaucratic hassles.

For example, the EU will want UK food exporters to provide health certificates and undergo sanitary tests at borders.

UK regulatory bodies will not be able to certify products for sale in the EU. So in practice trade with Europe will shrink as a proportion of the total.

We will trade more to the rest of the world, and buy more local produce. Trade with Europe has been falling as a proportion of the total for more than a decade, and Oxford Economics reckons that it could fall back to where it was in the 1960s.

The switch to local production is already happening, thanks to Covid disrupting supply chains.

For a business, it makes sense to buy locally if you can – you don’t want components stuck at Calais. But there is something bigger going on, a social shift towards the authenticity of knowing where something has come from.

We are not going to have our iPhones made round the corner, but we are already trying to buy more UK food.

For example, Aldi, which is German owned, has just pledged to buy £3.5billion more from British farms over the next five years. Waitrose is buying more British lamb, replacing imports.

Morrisons reports that 70 per cent of its customers say they want to buy more UK produce…and so on.

So some further switch is bound to continue. The challenge will be to seize that opportunity. And the wide blue yonder? Well, everything is to play for. The trade deal is with Europe, not with the rest of the world. But Europe is only 15 per cent of the world economy. Growth is elsewhere.

The Centre for Economic and Business Research projects that China will pass the US to become the world’s biggest economy by 2028, and by the way, that the UK economy will be 23 per cent bigger than France by 2035.

The deal does not help the UK go for that growth, but it will be a nudge encouraging us to focus on where growth will be.

Take the City. There is no comprehensive deal for financial services, and though I expect some sort of accord will be reached with the EU, we have to accept that some business has already moved to Europe.

But EU clients account for only about 10 per cent of the UK’s financial exports, and the City was finding itself starting to be restricted by EU regulation anyway.

Throughout its history it has prospered by creating new markets and services, not by hanging on to old ones.

We can’t know what those markets and services will be because they don’t exist yet. The authorities’ task is to help create conditions for people to go and find them. I hope – and think – they know that.

There’s the rub. See the Brexit deal in static terms and it is more restrictive than we had as members of the EU.

See it in dynamic terms and it opens the way to trade more freely with the rest of the world. And that is what we have to do, for the rest of the world is much bigger.