The UK’s service exports have grown significantly, according to new data from the Office for National Statistics (ONS), even as the UK still experiences a significant trade deficit with its largest economic partner.
According to the latest figures, services export growth has significantly outperformed goods exports in the long-term and also better weathered pandemic disruption.
However, trade with the nation’s biggest trading partner – the EU – was shown to be increasingly in deficit, a trend services weren’t entirely immune from.
Services growth
Over the 2010-2023 period, services growth was nine times greater than goods growth, with the former increasing by 63% and the latter only 7%.
The diverging trajectories for each export type were consolidated by the impact of the pandemic. Services exports recovered strongly, exceeding historic volumes with a record-breaking £400bn in global services exports in 2022 announced last year.
By contrast, ONS stats shows goods exports are below 2013 levels.
Long run-shift
Speaking to the FT, Centre for European Reform’s John Springford said:
“Trends in UK trade have been a long-run shift from goods exports to services exports, as competition from both the EU and other manufacturing centres has pushed UK comparative advantage towards services.”
He added that Brexit has accelerated the shift.
EU challenges
A City AM report noted the UK’s growing trade deficit, in spite of the impressive services growth.
Over the same fourteen-year period, the UK’s balance of trade has fallen from 0.2% of GDP to -2.2%, reflecting a clear shift towards importing more than it exports.
Reduced volume in trade with the EU – still the UK’s biggest trading partner post-Brexit – was considered to be largely responsible.
While the UK runs trade surpluses with many of its partners, largely down to substantial services exports, its deficit with the EU increased by 3.8% per year in the decade to the pandemic.
The ONS noted that this narrowed slightly during the pandemic but now “appears to have resumed its previous pattern of gradual widening seen over the previous decade”.
Despite overall growth, there was also a notable decline is sales of certain services to the EU since 2010, including transport, financial services, government services and personal, cultural and recreational services.
Strong output
A recent UK purchasing Managers’ Index release reflects a similar picture for UK goods and services.
April’s composite output index rose to 54, an increase from last month’s 52.8. According to the index, anything over 50 reflects overall growth, whereas figures below 50 reflect contraction.
The growth reflects the fastest increase in output since May last year, with services performing especially well and overall business activity up. By contrast, manufacturing fell to 48.7, from the previous month’s 50.3, due to reduced demand.
The figures have mostly been interpreted as a sign that inflation is still too high for the Bank of England (BoE) to entertain interest rate reductions in upcoming months.
According to a Guardian report, the BoE’s chief economist, Huw Pill, suggested August will be too soon for rate cuts, owing to a still-buoyant labour market and services sector strength.