Pantheon Economics’ UK monitor showed that despite a promising picture painted by second quarter GDP data, UK exporters were suffering compared to the rest of the world in the run-up to Christmas.
Data from CPB Netherlands show that UK goods export volumes were 16% below their pre-COVID level in July, whereas they were 1.4% above their pre-COVID level across all advanced economies, and a huge 14.6% above in China.
“We expect net trade to weigh on GDP growth ahead, as a recovery in foreign travel causes the UK’s structural trade deficit in travel services to re-emerge, and as British manufacturers continue to be cut out of global supply chains, due to Brexit,” said Pantheon Economics.
The release showed that on the face of it, the trade data for Q2 were fairly upbeat. The trade deficit was revised to £2.1bn ($2.85bn), from £4.7bn, in the national accounts. As a result, net trade contributed one percentage point to overall GDP growth in Q2, compared to the previously-estimated a 0.9 percentage point drop.
The narrower deficit reflected both a stronger than previously estimated recovery in exports and lower imports.
Quarter-over-quarter growth in export volumes was revised up to 6.2%, from 3.0%, leaving them 2.2% below their Q4 2020 level, compared to 3.2% previously. Growth in imports, meanwhile, was revised down to 2.4%, from 6.5% — leaving them 9.3% below their Q4 2020 level.
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Part of the slower UK trade recovery could be down to the fact that the UK does not make many of the products that are in high demand right now, such as household goods and semiconductors. However, survey evidence suggests that the UK is lagging behind the Eurozone, which shares similar characteristics.
In services trade, exports still were 23.7% below their pre-COVID level, while imports were 34.4% below. The sectoral breakdown showed that the pandemic is still the biggest factor behind the under-performance of services exports.
Financial services exports were 10.5% below their pre-COVID level, as firms lost the ability to service clients in the EU, from the City of London.
“All told, then, we think that net trade will subtract about 0.2 percentage points from year-over-year growth in GDP in both 2022 and 2023,” said Pantheon Economics.
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