UK exporters are struggling - and it isn't hard to see why Posted by David Smith at 09:00 AMCategory: David Smith's other articles My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission. Trade is often the poor relation in discussions of the UK economy, though it is one of the most requested topics among readers, some of whom have a memory of the time when the trade figures were the number one economic indicator, often leading the news. There are a couple of reasons for the Cinderella status of trade statistics. One is that these days they are published on the same day and at the same time as a clutch of other figures, including monthly gross domestic product, a relative newcomer which grabs most of the
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UK exporters are struggling - and it isn't hard to see why
My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.
Trade is often the poor relation in discussions of the UK economy, though it is one of the most requested topics among readers, some of whom have a memory of the time when the trade figures were the number one economic indicator, often leading the news.
There are a couple of reasons for the Cinderella status of trade statistics. One is that these days they are published on the same day and at the same time as a clutch of other figures, including monthly gross domestic product, a relative newcomer which grabs most of the attention.
A second reason is that, in these days of huge capital flows, trade figures no longer move the markets in the way they used to. The era when a bad set of trade figures could, by putting pressure on the pound, force interest rates up and, in 1970, may have cost Harold Wilson, then then Labour prime minister, the general election, are long gone.
They still tell us something, however, and that something can be quite important. Lost in the statistical flurry last month was the news that the UK’s trade deficit in January was easily the biggest on record, at a huge £26.5 billion for goods, and £16.2 billion for goods and services taken together.
These were not figures for those of nervous disposition. The deficit in goods is usually about £12 billion, while the overall deficit is normally well below £10 billion.
A new method introduced by HM Revenue & Customs at the start of the year for collecting data on imports and exports from the EU may have played a part. HMRC thinks that the figures for imports have not been much affected but that some of the sharp fall in exports to the EU will have been due to the change.
Even so, the figures were a reminder that, when it comes to the balance of payments, the UK is pretty unbalanced. After a temporary break in 2020, when there was a rare surplus in total trade, of £2.9 billion. Normal service was resumed last year, with a deficit of £28.8 billion. Last year’s current account deficit was £60 billion, 2.6 per cent of gross domestic product, and it is officially predicted to widen.
The deficit in trade in goods, £129.4 billion even in 2020, widened to £155.4 billion last year, 10 times what it was a quarter of a century ago. Forty years ago, the UK ran a trade surplus in manufactured goods, and had always done so. The last time the UK had an overall surplus on trade in goods also was in the early 1980s, thanks to North Sea oil.
Which brings me to one of my points today. The UK’s oil surplus lasted until the early 2000s but now that trade too is in deficit, to the tune of £4.4 billion last year and a record £1.6 billion in January. Given the surge in oil prices, and those for imported gas, that deficit is only going to get bigger, probably very significantly so.
The other worry, recently highlighted by the Office for Budget Responsibility (OBR), and mentioned here a couple of weeks ago, is the UK’s disengagement from international trade.
Trade is good, it drives productivity and other improvements. It is no accident that politicians of the past lauded export-led growth. “Export or die” used to be a slogan.
In the run-up to the 2016 referendum the Bank of England highlighted how the UK had become a more open economy, with trade comprising a high proportion of gross domestic product (GDP) during the long period of EU membership.
That this has now gone into reverse was described by the OBR. While every other big economy member of the G7 has seen a recovery in trade intensity – trade as a proportion of GDP – from the low point of 2020, the UK’s trade intensity is now even lower than it was at that low point.
The OBR is sticking to its view that Brexit will result in a 15 per cent drop in the UK’s trade intensity. The EU trade deals rolled over by the government, and the new deals being negotiated and in prospect, will only compensate for a tiny fraction of the losses as a result of Brexit, according to the official forecaster.
Rishi Sunak, who supported leaving the EU, like many who work or worked for hedge funds, reluctantly conceded in evidence to the Commons Treasury committee last week that Brexit was inhibiting UK trade. Boris Johnson, asked the same question by the Commons liaison committee, suggested it was because exporters were not trying hard enough. I know which one of them I would believe on anything to do with economics.
The UK’s disappointing recent trade performance goes deep. World trade in goods and services grew by a hefty 9.3 per cent in volume terms last year, according to the International Monetary Fund. Yet the UK’s exports of goods and services fell by 1.2 per cent on a balance of payments basis.
Exports of goods fell by even more last year, by 2 per cent from depressed 2020 levels. A couple of years into his chancellorship, George Osborne set out his ambition for doubling UK exports. Well, the volume of exports of goods and services last year was the lowest since 2014, while exports of goods were last lower in 2010, when the economy was recovering, bleary-eyed, from the financial crisis.
You might say that 2021 was a year when the economy was recovering from the pandemic, so some disappointment was inevitable. Certainly, manufacturers were beset with supply shortages and some service sectors, notably travel and transport, were a long way below normal levels, depressing service-sector exports (though this is an area in which UK imports traditionally exceed exports). Imports have also been depressed.
On the same basis that saw UK exports fall last year, and end 2021 with exports 15.7 per cent below the pre-pandemic levels prevailing at the end of 2019, however, France’s exports grew by 9.2 per cent last year, while Germany’s were even stronger, up 9.9 per cent. You would expect Germany to have been even more hobbled by the impact of supply shortages on industry.
I do not blame Britain’s exporters for this malaise. We have some superb exporting businesses, but they are operating with one hand tied behind their backs and with notably less government help and support than competitor countries. I don’t think a new royal yacht, which the government is proposing to use as part of future export drives, will change that.
It is too late to do anything about the main cause of this malaise, an economically damaging Brexit done in such a way that little, or no thought was given to the consequences. As far as trade is concerned, things are panning out in the way once stupidly dismissed as “project fear”. And we will be poorer as a result.