Trading through the pandemic: recent trends in UK exports and imports
9th December 2020
Economic commentary- 2 December 2020
The UK’s exports have expanded at a brisk pace in the past few years, helped by solid global growth and the depreciation of sterling in the wake of the EU referendum. At the same time, the long-standing shift from goods to services has stalled, while there are signs that Brexit has already had an impact on trade with the EU.
After steep falls earlier in the year, as the Coronavirus pandemic struck, trade flows have revived in the past few months. Indeed, the value of goods being imported into the UK is now back to normal levels. But goods exports are still markedly lower, and trade in services will not recover fully until people are able to travel again.
Imports will continue to expand in the coming months, in response to brisk demand for consumer goods, preBrexit stockpiling, and purchases by the government of personal protective equipment (PPE) to facilitate the roll-out of COVID-19 vaccines. Looking further ahead, however, some important trade flows will be dampened as a result of the UK’s final extrication from the EU.
The four years since 2015 have been pretty decent ones for British exporters. The UK’s export earnings haven’t grown so briskly since before the global recession of 2008-09. But the Covid pandemic has upset the apple cart, with trade flows falling off a cliff earlier this year. Although a revival is now under way, the recovery is far from complete, and the ‘new normal’ is unlikely to be exactly like the ‘pre-Covid normal’, not least because of Brexit. Even before the UK’s formal departure from the EU at the end of January 2020, its impact was already being seen in the trade statistics. There will inevitably be more to come, with the new trading arrangements imposing extra costs, and in the near-term the negative impact on UK-EU trade is unlikely to be made good by new agreements that might be struck with other countries. The upshot is that exporters are likely to find the going rather tougher in the years ahead.
The pre-Covid normal
Let’s begin with a few basics. In 2019, the value of all goods and services exported from the UK amounted to £691 billion, while imports were valued at £721 billion, giving a total of just over £1.4 trillion. With imports exceeding exports, there was a deficit of £31 billion, which was equivalent to about 1.5% of GDP. This wasn’t unusual, with the UK having run a shortfall on its trade in every year since 1998. The UK is the world’s second largest exporter of services, after the United States, and habitually generates a substantial surplus. But this is hardly ever enough to make up for the big shortfalls on trade in goods.
Although recent years have seen relatively lacklustre economic growth at home, with GDP expanding by less than 2% every year since 2016, the global economy has enjoyed a relatively robust streak after the wobble that emanated from China in the middle of the last decade. The competitiveness of British products and services has also been enhanced by sterling’s depreciation following the EU referendum in 2016. So, after a period of sluggish export growth in the years following the recession of 2008-09 (exports even fell slightly in 2014 and in 2015), the past few years have seen a marked change of gear. The result was that in 2019 the value of total exports was nearly a third higher than it had been four years earlier. As ever with trade data, there are some caveats. Some of the growth in the past few years has been down to a doubling in the value of oil exports during 2017 and 2018, followed by a surge of outbound gold shipments in 2019. But even taking account of these, exports in 2019 were still 29% higher than in 2015. With imports growing at a similar pace – 31% between 2015 and 2019 – the trade balance has varied little and shown no clear direction.
Read more here: Trading-through-the-pandemic-2-Dec-2020.pdf (348 downloads)