UK exports fewer goods after Brexit, tilting economy to services

The UK is still exporting fewer goods than before Brexit, as the economy becomes more reliant on selling services to the rest of the world, according to official data.

The volume of exports of goods was around 15% below records registered in 2018 in the three months to December, according to figures released Monday by the Office for National Statistics. That’s in contrast to services exports which have continued to shoot up after surpassing pre-pandemic peaks. 

The figures indicate the UK is struggling to plug the hole left by withering EU demand for its goods and services after Brexit. The UK’s trade balance has worsened since 2010, with falling EU trade weighing on progress made to boost business with the rest of the world. 

“It was clear prior to Brexit that, while there could be growth from non-EU export markets, the EU was the single biggest trading partner for the UK,” said Tera Allas, director of research and economics at McKinsey in the UK. “Even if other non-EU markets were to grow, in absolute terms, it would be difficult to off-set any lost trade with the EU.”

The ONS analysis suggests the UK has been able to tap into different markets after Brexit. Exports of goods to non-EU countries have grown faster than those to the EU since 2010. At the same time, the UK has snapped up goods from the EU at a quicker pace than it did from the rest of the world, widening its deficit with the European bloc.

The UK is eyeing exports as a way to pull its economy out of a period of lackluster growth. Former Brexit chief negotiator David Frost is set to answer questions about the impact of Brexit on UK trade, the UK’s failure to hit its target for trade agreements and the possibility of closer trade links to the EU, when he gives evidence to the Business and Trade Committee on April 23. 

The UK is becoming more heavily reliant on selling its services abroad. While goods exports have flattened in recent years, services exports increased more than 63% since 2010, the ONS said. 

The shift to services is a global trend. Services trade has been growing two to three times as fast as goods trade for the last couple of decaldes, while goods trade has stagnated, according to McKinsey research.

Selling more services abroad could also bring benefits at home. Services trade is “not nearly as concentrated in London or South East as one might initially think, so it could also provide a fairly diversified source of economic and exports growth,” according to Allas.

This is in line with Rishi Sunak’s ambitions to for the UK to become a “knowledge economy,” led by high-value service industries such as artificial intelligence and technology. 

The UK boosted its services exports to both EU and non-EU countries by about 40% between 2010 and 2018. However, EU demand appears to be more vulnerable to shocks, as EU exports saw an outsized fall during the pandemic. 

“We should embrace our “services super-power status” and really lean into it, while of course continuing to support world-class manufacturing,” Allas said.