Strategy & economics
Trade with the EU
The UK had a trade deficit of 3.7% of GDP with the rest of the EU in 2015. About 43% of UK exports in goods and services went to the EU in 2015; this proportion of exports has been on a declining trend since 2012. This highlights the relatively poorer economic performances of the UK’s EU trading partners since then. Furthermore, there has been relatively stronger demand growth in the non-EU markets. About 53% of the UK’s imports came from the EU in 2015, a proportion that has remained fairly steady. On the flipside, the UK is the EU’s largest single export market for goods (if the UK is treated as outside the EU). The UK is modestly ahead of the US, with 16.9% of EU exports going to the UK, compared to 16.5% to the US in 2015.
Trade with non-EU
The UK ran a trade surplus of 1.7% of GDP with non-EU countries in 2015. Over the years prior to, and during, the economic downturn, the share of goods exports to non-EU countries gradually rose, to the extent that they now account for over half of goods exports. UK goods exports to non-EU countries have grown at a faster rate than UK goods exports to the EU, with the former averaging 5.8% growth of each year since 1999.
The US was the UK’s largest export partner and second-largest import partner (after Germany) in goods and services in 2015. The US accounted for 19.7% and 11.1% of the UK’s total exports and total imports, respectively. From 2005 to 2015, the UK has continually run a trade surplus with the US. Goods and services account for similar proportions of total exports to the US.
While UK exports are dominated by those to the US and the EU, the importance of China as a trading partner has increased consistently over the past decade. China has become the UK’s second largest non-EU import partner behind the US, accounting for 7% of UK imports in 2014 compared with 3.3% in 2004. On the export side, China has become the 6th biggest destination for UK goods exports. Trade in goods dominates UK trade with China. With imports from China growing at faster rate than exports to China, the UK’s trade deficit with China has also grown to the second highest behind Germany.
Food for thought on trade after the referendum
Following the Brexit vote, most believe the UK will face a significant headwind when exporting to the EU. While boosting growth through greater intra-European trade has always been one of the objectives of the EU, intra-eurozone trade has flat-lined since the recession.
At the same time, it is evident that the EU accounts for a declining share of the world economy and that greater trading opportunities lie with faster growing economies outside the EU. We think the UK corporate sector will increasingly focus on identifying global export opportunities. Furthermore, in the absence of EU bureaucracy, the UK can freely and independently pursue trade deals with rest of world. So, rather than having a detrimental impact, the Brexit decision may turn out to be invigorating to UK trade.
Ten facts on UK trade
The UK’s trade balance – the difference between exports and imports – has been in deficit (imports higher than exports) since 1998
The UK currently runs a trade deficit in goods, which is partly offset by a trade surplus in services
UK exports of goods to non-EU countries have surpassed those to the EU since 2012
The share of exports to the EU has fallen from 55% in 1999 to 43% in 2015
The UK runs the largest trade deficit with Germany, followed by China
The US is the UK’s largest export partner and second largest import partner, second only to Germany
The UK exports more to Ireland than to China. The UK has had a trade surplus with Ireland throughout the past 16 years
Our top three export in goods are mechanical machinery, cars and pharmaceutical goods
75% of the UK’s vehicle exports went to the EU in 1998. This share has fallen to just 40% in 2014
Services account for 43.9% of total exports in 2015. Financial services accounted for 22.5% of UK services exports
Janet Mui, CFA is the global economist at Cazenove Capital, the wealth management division of Schroders. Janet is responsible for the formulation and communication of Cazenove’s top-down views. She is a member of the investment committee that oversees strategic and tactical asset allocation at Cazenove. Janet is also the macro spokesperson and a regular commentator at major media outlets including the BBC, Bloomberg and CNBC.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
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All data contained within this document is sourced from Cazenove Capital unless otherwise stated.