Recent improvements in the UK’s trade openness have been driven
by a temporary boost from the global dash for gold that has
covered over a worrying fall in goods exports, and more promising
growth in the exports of services such as banking, travel and
education – the one area of trade where the UK has not been left
behind by G7 comparators – according to new Resolution Foundation
research published today (Tuesday).
The overwhelming consensus has been that the trade barriers
brought about by Brexit would leave the UK economy less open,
less competitive and smaller.
But while the UK’s trade openness – trade volumes as a share of
GDP – fell after leaving the EU, and it remains the only G7
economy yet to have returned to its pre-pandemic size, the report
– Open for business? – shows that on the face of
it, UK trade openness appeared to have recovered relative to its
G7 competitors last year. UK trade openness increased by 7 per
cent between 2021 and 2022.
Export growth has driven this recent recovery, as the UK remains
bottom of the G7 pack for imports. Examining what lies behind the
UK’s export performance, the research identifies two key drivers:
a one-off boost to goods exports with little benefit to the UK
economy, and a more promising growth in services exports.
Looking at the unexpected growth in UK goods exports in the
second half of 2022, the research shows that two-fifths of the
growth was accounted for by selling precious metals to just four
countries (China, Hong Kong, Switzerland and the UAE). This
growth has been driven by a ‘dash for gold’ among non-Western
central banks, say the authors, so is unlikely to be sustained
and serves limited benefit to the UK economy in any case. Beyond
this, the UK’s goods export performance remained a disaster, with
goods exports still 10.7 per cent below pre-pandemic levels.
The UK’s strong performance in services exports looks far more
promising however, even accounting for some exaggeration due
to data measurement issues. The UK – which is already the second
largest exporter of services in the world (behind only the US) –
recorded the strongest performance in services exports in
the G7 between Q4 2021 and Q4 2022. UK services exports were 15
per cent higher in 2022 than they were the year before.
The UK’s strong performance has been built on favourable
conditions – strong global demand for the services that the UK
specialises in. But even accounting for the UK’s specialisms, the
research shows that the UK has performed well overall – by
increasing its global market share in both travel and other
business services (such as advertising, legal services and
R&D).
The UK’s strong performance in these sectors reminds us that it
is services – which are too often ignored by politicians, who
find it easier to talk about manufacturing – that will have to
underpin any strategy for economic growth in the decade ahead,
says the authors.
Sophie Hale, Principal Economist at the Resolution
Foundation, said:
“The broad consensus has been that the trade barriers brought
about by Brexit would harm the UK’s trade and wider economic
performance.
“That was very visible during a terrible 2021, but there have
been some recent signs that the UK’s headline record on
trade appeared to be improving somewhat. While imports remain
suppressed, export levels for goods and services look more
promising.
“While improvements in goods exports have been inflated by a
one-off ‘dash for gold’, the UK’s resilient services exports grew
15 per cent last year. This offers something to build on in the
years ahead.
“Britain post-Brexit remains a services superpower – exporting
more services around the world than any other country bar the
US. Britain’s army of accountants, artists, consultants, and
educational institutions are a success story that politicians
rarely celebrate. But they hold the key to stronger growth in the
decade ahead.”
