Recent data presented a bleak outlook for UK exports, TM uncovers the reality behind the numbers.
In July and August news reports claimed an ever widening UK trade deficit. The Office for National Statistics (ONS) reported the deficit increased to £9.4b from £9.2b in May and Britain’s trade position worsened in June for the third consecutive month.
Exports dropped by £400m in June to £23.5b, predominantly fuelled by a fall in oil exports and manufacturing goods. Imported goods fell by £100m to £32.9bn after a fall in oil and aircraft imports.
In fact, economists had anticipated the trade deficit to contract to £8.8bn, maintaining that tensions between Russia and the west, a weak Eurozone economy, and a strong pound were making British goods more expensive abroad, were all likely to weigh on foreign demand for UK goods in the short term at least.
To exacerbate matters, Russia placed a “full embargo” on food imports from the EU, US and other Western countries in retaliation to food sanctions over Ukraine. Such developments are set to hit some UK firms hard, particularly from the food and drink sector.
Fishing and fish processing firm Lunar, based in Peterhead in north-east Scotland, makes half of its £60m annual turnover from exports to Russia.
Firm boss, Sinclair Banks told the BBC: “We’ve £200,000 of herring sitting at St Petersburg, we don’t know if it will go through or even if it will be paid for”. He added that the company had already cancelled a shipment exporting herring as a result of the embargo.
In addition, Shropshire-based cheese-maker Belton Cheese reported the cancellation of a £30,000 cheese order due to be sent to Russia in mid-August.
Additionally, the imminent vote on Scottish independence could hinder trade by introducing barriers to labour and capital mobility where presently there are none.
However, according to deputy chief economist at EEF, the manufacturers’ organisation, Neil Prothero, there’s no need to panic, after all, examining the trade data on a monthly basis can make changes seem volatile, but in reality the picture is far more stable.
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Prothero told TM that the underlying trend over the past few years was that the share of overall exports in non-EU countries had gradually increased and the share of exports to the EU had declined.
“Even though the total level of exports to the EU might still be rising, they are rising at a faster pace for those going to non EU countries,” he said.
“This is down to many EU countries experiencing harsh recessions, so overall levels of demand in many European countries is still weak.”
In particular, countries with large economies like France and Italy are still struggling. Even Germany, which has one of the stronger economies in that region, released data showing a weaker trend, revealing a less than expected rise in industrial production.
Factory production in Germany increased 0.3% when experts had anticipated a 1.4% increase.
The figures followed a decline in June factory orders, and showed that production in manufacturing rose 0.1%, with construction output up 1.2%. Consumer goods production was up 1.7% and capital goods production dropped 0.9%.
Prothero also referred to the effect of aircraft imports on the deficit as a whole. He added: “In May there was quite a big chunk of aircraft imports, when this happens it boosts the import levels quite sharply and that has an impact on the overall deficit.
“But generally big import orders of aircrafts, once, twice, three times a year have an impact on the deficit number. Which is why looking at one month’s data doesn’t always give a correct picture of the underlying trend in the export picture.”
Exporting the future
So what’s on the horizon for UK exports? Looking forward into the next five to 10 years UK manufacturers have already begun to look beyond the EU at emerging economies like China, India and Latin America, where income levels will rise steadily and economies will undergo gradual changes to become more industrialised and service orientated.
According to official data released by Santander UK in June, exports to Chile, China and the United Arab Emirates (UAE) grew faster in 2013 than other key trading partners, up 73%, 18% and 16% respectively versus 2012.
In fact, Chile was the fastest-growing export partner for the UK, with total exports to the country standing at £1.2b last year, while exports to China grew to £12.4b.
A renegotiation on Britain’s role in the EU would also have grand-scale implications for UK exports. Despite the data, Europe remains the biggest export market for UK goods and manufacturing. There is no question that being part of the EU single market is beneficial for the UK, by removing trade restrictions and making trading with the rest of Europe seamless. A “no” vote in 2017 would have massive implications, which is why many EEF members agree that staying in Europe is the best possible solution.
Agreeing on exports
Another UK export positive is the proposed Transatlantic Trade and Investment Partnership (TTIP), which is tipped to help grow the UK economy substantially. While critics say it would increase US corporate power, making it more difficult for governments to regulate markets for public benefit, a potential free trade agreement between the two regions would standardise regulations and would be what Prothero calls “a major deal that would be a big boost to UK exporters.”
It is contentious area, involving many parties with vested interests and differing demands. Prothero believes negotiations will be slow, however, August’s reports on the final text for a free trade agreement between Canada and the EU could help blaze the trail for a deal with the US.
August’s agreement is set to slash tariffs between Canada and the EU by 98% and could potentially boost trade by 20%.
Finally, the British economy had more reason to celebrate when UK Trade & Investment (UKTI) reported the UK had attracted the most inward investment projects since records began in the 1980s.
According to annual investment figures for 2013/14 the UK attracted 14% more projects than last year.
The overall picture for UK exports is anything but doom and gloom. Exporting is a key part of the success of the UK economy. The good news is that the world is becoming ever more open to trade and UK businesses need to take advantage of the opportunities available in new, existing and emerging markets.