The UK’s post-Brexit trade has seen growing trade in services, though the performance of its goods exports remains “disappointing”.
According to new research by the think tank UK in a Changing Europe (UKICE), the post-Brexit economy is increasingly trending towards services, while trade in goods has not fully recovered since the Covid-19 pandemic.
Services growth
The report finds that service exports have increased nearly 29% since February 2020, noting that it is not financial services that have driven the growth but what the Office for National Statistics (ONS) calls ‘other business services’.
These include legal, consultancy and professional services, which have overtaken machinery and transport equipment sales, historically the bulk of UK exports.
The report notes that the reasons behind the strong growth in services is not yet clear, since many of the benefits the UK enjoys – such as a strong culture of remote working – are also present in other countries.
“However, questions remain as to why the UK has performed disproportionately well in this area, given that the rise of remote delivery is hardly unique to this country.”
Goods
By contrast, the UK’s goods trade “underperformed” relative to other western nations. The report states:
“Whilst other advanced economies have seen a modest recovery in goods trade, the same has not happened in the UK.”
Performance for goods, including chemical and fuel and automotive exports, have been generally “disappointing”, with chemical exports in particular declining in recent years.
Europe-to-UK trade
The UK’s trade with the EU has been stable since the signing of the Trade and Cooperation Agreement (TCA). Though UK-EU trade has been declining slowly over the last 25 years, Europe remains the largest source of imports for the UK, particularly in goods.
“This may in part reflect the UK’s delay in implementing border checks on EU imports post-Brexit, meaning many of the trade frictions implied by the TCA have not yet fully come into effect,” says the report.
The UK’s Border Target Operating Model (BTOM) is slowly being introduced for UK imports, with the final date expected in October this year. The full effects of leaving the EU have yet to be reflected in UK trade statistics.
UKICE says that this was partly down to the difficulties of collecting data, but “there is no doubt that recent UK trade performance has been poor, particularly in goods trade, compared both to historic trends and to other advanced economies”.
Trade deals
In terms of other potential trade targets, although there has been increased focused on trade deals since 2019, their benefits remain unclear.
With the exception of the UK’s agreements with New Zealand, Australia and Japan, most of the deals were roll-over agreements that largely replaced the existing EU ones.
“Therefore, whilst more or less protecting the status quo, the new FTA deals do little to drive future economic growth.”
Additionally, there is limited scope for new agreements, since there are a “limited number of possible countries” that the UK could negotiate with. Indian negotiations have been dragging on for a number of years, while any possible treaty with the US or China is currently out of reach due to political reasons.
The UKICE also highlights the limited impact on the UK’s economy, since services trade does not benefit as much from tariff liberalisation, the main benefit of trade deals.
