UK exports to EU rise as Brexit talks enter next stage

As Brexit gets nearer, British firms are exporting more to the other 27 countries in the European Union, a state of affairs that will linger over the difficult discussions ahead on the U.K's future relationship with the bloc.

Official figures released Friday show that seven of the top 10 destinations for British exports in 2017 were EU countries. Selling everything from cars to pharmaceuticals and gin, British firms exported some 37.7 billion pounds ($53 billion) worth of goods to Germany in 2017, around 13 percent more than the year before. Germany accounted for 11 percent of British exports, up a tad on the year before, and second overall behind the United States.

Other EU countries in the top 10 included France, where exports spiked by nearly 30 percent in 2017, and Ireland, the only EU country to share a land border with the United Kingdom.

Overall, EU countries accounted for 48.8 percent of British goods exports to the EU in 2017, up from 48.2 percent the year before.

The increasing importance of the EU as a destination for British goods is largely due to the fact that Britain remains a member of the EU until March 2019. Exporters also enjoying a boon from the fall in the value of the British pound after the country's 2016 vote to leave the bloc.

Bank of England Governor Mark Carney has called it a "sweet spot," with exporters benefiting from the near 20 percent fall in the pound's value against the euro "in anticipation of a Brexit that has not yet happened." The euro, which is used by 19 EU countries, is now worth 0.89 pound, compared with around 0.75 pound before the referendum.

But Brexit is happening and no one, it seems, quite knows what it will mean. That's a particular problem for businesses that have enjoyed tariff-free trade with the EU for decades thanks to the bloc's single market and its customs union.

The Conservative British government has made clear that Brexit means leaving both the single market and the customs union. However, it hopes to negotiate a new free trade agreement that will prevent the return of costly customs checks and tariffs.

No one is sure how that can happen and discussions this week within the British government failed to clarify its vision of the post-Brexit relationship.

A deep split within the Conservative party has emerged in recent months. Some lawmakers in Prime Minister Theresa May's party want close ties with the remaining 27 EU nations and a period of transition after Brexit day. Others want a more fundamental break and are comfortable with the idea of tariffs on trade with the EU if it gives Britain more leeway to carve out trade deals with fast-growing economies around the world, particularly in Asia.

May hopes to agree soon on the terms of a transition deal that would see Britain remain in the single market and customs union for a period after the Brexit exit. That would give firms and households time to adjust.

Carney has argued repeatedly that the outlines of a transition deal need should be in place by the end of the first quarter of this year so businesses can plan ahead. Many firms have held back investment amid the uncertainty and some, particularly in finance, have warned they could relocate some activities to the EU if the situation doesn't become clearer.

"As we move through the Brexit process, more needs to be done to provide clarity on what the future trading relationship with the EU will look like," said Suren Thiru, head of economics at the British Chambers of Commerce.

For its part, the EU has been relatively clear.

Michel Barnier, the EU's chief Brexit negotiator, said Friday the transition is "not yet sealed" and that barriers to trade, such as border checks, would be inevitable if Britain opts out of the single market and the customs union. Barriers can also include everything from tariffs to legal red tape.

"The United Kingdom must accept all the rules and the conditions right until the end of the transition, and must also accept the inescapable consequences of its decision to leave the European Union," Barnier said at the end of a week of technical talks.

Proponents of Brexit say Britain would be able to thrive even in that environment as the country could have more freedom in trade discussions with countries like China, India and even the United States.

There's clearly room for growth in British exports to China: in 2017, Britain sold 18.2 billion pounds worth of goods there, representing only 5.3 percent of its total exports, according to the Office for National Statistics.

Even though the relative importance of EU trade is greater for Britain, Brexit proponents argue that EU countries have a lot to lose, too, if free trade is interrupted. Germany, which is Europe's biggest economy, is the No. 1 seller of goods to Britain — it sold 69.5 billion pounds worth of goods to Britain in 2017, or around 14.5 percent of Britain's total imports. That's a lot of BMWs and Volkswagen Golfs.

Brexit-backers also say the EU is a major consumer of British services, particularly in finance, and that will help the sides reach a deal.

However the Brexit process pans out — and Carney has said he expects more "twists and turns" — the British economy and the EU are inextricably linked, so both sides may be treading carefully in the months ahead.

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Lorne Cook in Brussels contributed to this report.