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 on 28 February.
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% 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% 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% 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% 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.”
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