Data from the Office for National Statistics (ONS) has revealed a drop in both the UK’s imports and exports of goods in 2023.
The latest ONS report, published on Friday (1 March), reviews trade data from across the whole of 2023 and shows that the value of total goods imports decreased by £52.2bn (a drop of 8.2%), compared with 2022, while total goods exports fell by £17.4bn (4.4%).
Adjusted for inflation, total goods imports decreased by £37.8bn (7.4%), while total goods exports fell by £15.2bn (4.6%).
Cause for optimism
Commenting on the ONS figures, Marco Forgione, director general of the Institute of Export & International Trade (IOE&IT), said the drop in UK trade activity was disappointing, but added there are reasons to be optimistic – including the untapped potential of the country’s micro, small and medium-sized enterprises (MSMEs).
He noted that the IOE&IT’s own Trade Dashboard, supported by Oxford Economics, found that only around a tenth of the UK’s MSMEs are currently exporting.
“This has been a difficult period for traders, with a lot of uncertainty and instability in the wider business environment, including inflation and supply chain shocks following the wars in Ukraine and the Middle East.
“The positive for the UK, as our own Trade Dashboard shows, is the continued success of the country’s services trade. The data shows that the UK remains a global services superpower.
“It is also worth noting the potential to boost trade if we do more to encourage MSMEs to trade internationally. Our latest Dashboard shows that just 11% of UK MSMEs are exporters and 12% are importers. This is why we’ve called on the government to enhance its support for MSMEs to trade globally, starting with this week’s Spring Budget.
“This will have a lasting positive impact on the economy because we know that firms that trade internationally are more resilient, more profitable, more sustainable and employ more people.”
The IOE&IT Trade Dashboard
IOE&IT’s first monthly Trade Dashboard, supported by Oxford Economics, also found that trade values have been declining, falling in the last month of 2023 with total imports down 4.1%, compared to December in 2022, with exports down 3.7%.
The fall in exports was responsible for a widening of the deficit in trade in goods and services, which grew to £15bn in the fourth quarter of 2023 (up from £8.8bn in Q3).
In volume terms, UK exports remained on a weakening trend. The main concern here is that this same trend is not yet evident in other major economies.
If there was a bright spot in the Q4 2023 goods numbers, it was in the exports of machinery and transport equipment, which was the only goods category to see an increase in exports on a year-on-year basis. Food and live animal imports was the only sector to show an increase in imports over the same period.
A services economy
As Forgione highlights, the picture for services was more positive, with exports 1.1% higher in Q4 2023 compared to a year earlier – an increase of £1.2bn. This growth was driven primarily by a large jump in exports of ‘other business services’, while insurance and travel also showed strong quarterly growth.
The dashboard also shows that the value and volume of goods exports to both EU and non-EU destinations has declined over the past year. However, Forgione explains that there may be a brighter picture ahead for traders
“There may be better news coming for exporters, because there are signs of a positive recovery. For example, the monthly CBI survey shows a pick-up in the export order book balance for February 2024.”
Improving outlook
Oxford Economics remains relatively upbeat about the future picture for international trade.
It is anticipating a gradual acceleration in trade as the global economy recovers this year. As a result of this, its 2024 global exports growth forecast has been revised up slightly by 0.5 percentage points.
It has also raised its 2024 world GDP growth forecast to 2.4%, from 2.3% a month ago, but admits this is still weaker than last year’s 2.7% gain. The revision was driven by tentative signs that global growth has improved early in 2024, after a soft end to 2023.
A global PMI produced by JP Morgan also indicates rising business confidence, rising to a seven-month high in January.
Are we finally able to see the Brexit effect?
After years where statistical “noise” from the pandemic and the inflationary effects of the war in Ukraine have made it hard to clearly discern the impact of Brexit on the UK economy, a picture may now be starting to emerge.
This is the claim from Emily Fry a senior economist at the Resolution Foundation, in this fascinating post. While she says that the surface-level picture is what many would expect – “an economy adapting to new trade barriers and losing momentum like a tyre with a slow puncture” – a deeper dive reveals a more nuanced story.
Trade in goods has undoubtedly been affected by the UK’s departure from barrier-free access to its closest trading partners, as Fry explains:
“By the end of 2023, goods trade had shrunk to levels not seen since 2015. This isn’t just part of a general slowing of goods trade around the world – the UK’s goods exports and imports have contracted by 13.2 per cent and 7.4 per cent since 2019.”
However, whether this is down to Brexit is challenged by the fact that trade with non-EU countries has declined as much as trade with the EU. Overall, it’s a worse decline than that experienced by any other comparable economy.
On the flip side, as IOE&IT’s Trade Dashboard shows, the service economy in the UK continues to thrive. Fry agrees that the sector has experienced an extended boom over the same period.