#TradeTuesday - Under-appreciated but not undervalued: The UK’s trade in services
When it comes to international trade, our thoughts often wander to containers and cars lined up at ports to be shipped off to far flung destinations. What is often forgotten, is the important role that trade in services plays across the country. Often less visible, the strength of British trade lies as much in consultants and brokers as it does chocolate and cars.
The political rhetoric suggests that Global Britain has finally been freed to chart its own trading course, crafting goods the length and breadth of the country the world has hitherto demanded but been unable to attain. The reality, however unfortunate, is quite the opposite – the UK’s trade performance is at an all-time low. Thankfully, despite this, a key fundamental quietly remains strong.
In the first quarter of 2022, figures from the Office of National Statistics (ONS) show that the UK’s current account deficit – that being the difference between the value of goods and services exported versus those imported, was £44.2 billion. This is the worst figure since quarterly balance of payments data was first published in 1955. Why, you ask? Driven by the rising costs of importing energy, and inflation on other goods, the UK has seen 10.4% growth in the value of what it imports and a 4.4% fall in exports the other way.
It’s not all gloom, when we drill down to services alone, we see a different, much rosier story. Unlike mercantile goods, the UK runs a sizable trade surplus in services. During that same quarter to March 2022, the UK exported £80.4 billion in services, while only importing £45.2 billion - a grand surplus of £35.2 billion. It is this trade surplus that must be truly appreciated.
Nowhere is this more apparent than in financial services. While financial services is often maligned, its importance to the country - however politically unfashionable - can’t be overstated. UK exports of financial services were worth £62 billion in 2020 and imports were worth £16 billion, creating a massive trade surplus of £46 billion for the year.
Surely, I hear you say, this is just a London story and doesn’t touch anyone outside the M25? While the City is often used as shorthand for the financial services industry as a whole, it belies its national significance. It is a truly UK wide enterprise. Industry lobby group – the ironically named - TheCityUK calculate that in 2020 over 2.2 million Britons were in employed in financial and related professional services. But here’s the thing - only 757,000 of those were in London. Two thirds of those people employed in the industry, therefore, were outside the City.
Global powerhouses like Morgan Stanley, BNP Paribas and Deutsche Bank have all relocated elements of their operations out of London to regional financial centres in recent years. These days Glasgow, Leeds, Bristol and Edinburgh all continue to contribute to the UK’s trading success via trade in services as much as their proud trading histories would suggest.
So the next time you hear that the UK is on a journey to level-up through trade, remember this is as likely going to come from consultants in Cardiff or bankers in Belfast, as it is confectionary and cars.