Trade is often the poor relation in discussions of the [UK economy](https://archive.ph/kPBH9), though it is one of the most requested topics among readers, some of whom recall when the trade figures were the No 1 economic indicator, often leading the news.
There are a couple of reasons for the Cinderella status of trade statistics. One is that they are now published on the same day and at the same time as a clutch of other figures, including monthly gross domestic product — a relative newcomer that grabs most of the attention.
A second reason is that, in these times 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 the 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 the figures for imports have not been much affected but that some of the sharp fall in exports to the EU are due to the change.
Even so, the figures are 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 — ten times what it was a quarter of a century ago. Forty years ago, the UK ran a trade surplus in manufactured goods, and up to that point had always done so. The last time the UK had an overall surplus on trade in goods was also 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 and imported gas prices, 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, and 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 higher proportion of gross domestic product (GDP) during the long period of EU membership.
That this trend has now gone into reverse was highlighted 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 down even from that nadir.
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 those in prospect, will only compensate for a tiny fraction of the losses as a result of Brexit, according to the official forecaster.
[Rishi Sunak](https://archive.ph/hRkB2), 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 UK 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 (although this is an area in which UK imports traditionally exceed exports). Imports have also been depressed.
However, 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, 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 manner once stupidly dismissed as “Project Fear”. And we will be poorer as a result.
–
*PS*
Productivity figures for the UK tend to have a depressing familiarity, one that underlines the challenge of trying to put in place any meaningful levelling-up agenda, which I am not sure that the government is any more.
Sure enough, a new analysis by the Office for National Statistics of productivity in towns and travel-to-work areas shows that, for large conurbations, productivity in the greater southeast is 61 per cent higher than in the rest of England and Wales. The gaps are smaller for large towns (13 per cent), small towns (7 per cent) and rural areas (19 per cent), but they are still there. London’s productivity is 55 per cent higher than the average for other UK cities.
If this suggests that the country is a productivity wasteland outside London and the southeast, that would be unfair. There are pockets of high productivity in towns and travel-to-work areas outside the region, including Leamington Spa, and Girvan, Edinburgh, Livingston, Peterhead and Aberdeen in Scotland.
But there are also large swathes of the UK where there are no places with above-average productivity. That includes the northwest, Wales, Devon, Cornwall and the East Midlands. The closest any part of the northeast comes to average UK productivity is in Sunderland, which must be the effect of the Nissan plant there.
What drives these productivity differences? Areas with a higher proportion of jobs in high-tech services and other knowledge-intensive sectors have the highest productivity. Sometimes, however, the differences are hard to explain. Towns outside the southeast often have lower productivity even when they have a similar industry mix, because of productivity differences within sectors.
*David Smith*
Sunday April 03 2022
Nov 19, 2018
‘SIR’ John redwood
We knew exactly what we were voting for. It is insulting to say that 17.4 million people were too stupid to know what out would look like .
“The public is tired of exports”. Michael Gove. I think that’s what he said.
Interesting that most of the above-average productivity areas outside of London are located in Scotland.
3 comments
Trade is often the poor relation in discussions of the [UK economy](https://archive.ph/kPBH9), though it is one of the most requested topics among readers, some of whom recall when the trade figures were the No 1 economic indicator, often leading the news.
There are a couple of reasons for the Cinderella status of trade statistics. One is that they are now published on the same day and at the same time as a clutch of other figures, including monthly gross domestic product — a relative newcomer that grabs most of the attention.
A second reason is that, in these times 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 the Labour prime minister, the general election — are long gone.
–
>>[Britain has lurched into the red … And missed the world trade upturn – (graphs)](https://archive.ph/OtXPD/4416d22a751f17ec67ddda311e9de34da797e902.jpg)
–
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 the figures for imports have not been much affected but that some of the sharp fall in exports to the EU are due to the change.
Even so, the figures are 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 — ten times what it was a quarter of a century ago. Forty years ago, the UK ran a trade surplus in manufactured goods, and up to that point had always done so. The last time the UK had an overall surplus on trade in goods was also 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 and imported gas prices, 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, and 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 higher proportion of gross domestic product (GDP) during the long period of EU membership.
That this trend has now gone into reverse was highlighted 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 down even from that nadir.
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 those in prospect, will only compensate for a tiny fraction of the losses as a result of Brexit, according to the official forecaster.
[Rishi Sunak](https://archive.ph/hRkB2), 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 UK 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 (although this is an area in which UK imports traditionally exceed exports). Imports have also been depressed.
However, 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, 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 manner once stupidly dismissed as “Project Fear”. And we will be poorer as a result.
–
*PS*
Productivity figures for the UK tend to have a depressing familiarity, one that underlines the challenge of trying to put in place any meaningful levelling-up agenda, which I am not sure that the government is any more.
Sure enough, a new analysis by the Office for National Statistics of productivity in towns and travel-to-work areas shows that, for large conurbations, productivity in the greater southeast is 61 per cent higher than in the rest of England and Wales. The gaps are smaller for large towns (13 per cent), small towns (7 per cent) and rural areas (19 per cent), but they are still there. London’s productivity is 55 per cent higher than the average for other UK cities.
If this suggests that the country is a productivity wasteland outside London and the southeast, that would be unfair. There are pockets of high productivity in towns and travel-to-work areas outside the region, including Leamington Spa, and Girvan, Edinburgh, Livingston, Peterhead and Aberdeen in Scotland.
But there are also large swathes of the UK where there are no places with above-average productivity. That includes the northwest, Wales, Devon, Cornwall and the East Midlands. The closest any part of the northeast comes to average UK productivity is in Sunderland, which must be the effect of the Nissan plant there.
What drives these productivity differences? Areas with a higher proportion of jobs in high-tech services and other knowledge-intensive sectors have the highest productivity. Sometimes, however, the differences are hard to explain. Towns outside the southeast often have lower productivity even when they have a similar industry mix, because of productivity differences within sectors.
*David Smith*
Sunday April 03 2022
Nov 19, 2018
‘SIR’ John redwood
We knew exactly what we were voting for. It is insulting to say that 17.4 million people were too stupid to know what out would look like .
“The public is tired of exports”. Michael Gove. I think that’s what he said.
Interesting that most of the above-average productivity areas outside of London are located in Scotland.