Stephen Hunsaker analyses the latest data from the Office for National Statistics’ monthly UK trade report, highlighting the key trends in terms of imports and exports and the impact of trade deals and gas prices. This forms the first in a series of UK in a Changing Europe trade trackers.
The Office of National Statistics (ONS) released its monthly UK trade report for August 2022 earlier this month. The report detailed record high levels of imports (mainly due to increasing gas prices), a widening trade deficit and the limited effects of new trade deals.
Imports and exports trends
The report saw imports rise more than exports, further widening the UK’s trade deficit. Since the end of the Brexit transition period on 31 December 2020 non-EU imports have surpassed EU imports into the UK. Non-EU imports increased sharply (13%) in August. It was the highest level of imports from non-EU countries since records started in January 1997. The high level was primarily due to high gas prices.
The ONS explained in their monthly report that several factors – the UK leaving the EU and the transition period that followed, the COVID-19 pandemic and the subsequent supply chain disruptions, and the looming global recession – ‘have caused higher levels of volatility in trade statistics in the past two years’. After relatively stable import and export levels, the anticipation of a no-deal Brexit caused non-EU exports to rise. A spike in imports from the EU, driven by stockpiling occurred before the end of the transition period on 31 December 2020.
However, while this negative impact on overall trade is consistent with pre-Brexit forecasts, these trends have not shown what some economists predicted, a shift from EU to non-EU trade. Instead, EU and non-EU trade appear to have displayed broadly similar trends. This remains a puzzle, given the new non-tariff barriers to trade with the EU.
While overall trade volumes have recovered, the UK’s trade performance has been poor relative to other advanced economies since Brexit. Among G7 countries, the UK has performed the worst since the end of the transition period. Broadly consistent with the data so far, the OBR projected in its March 2022 forecast that imports and exports will be around 15% lower in the long term due to the UK leaving the EU.
Trade deals
The trade deals that have already been signed are mostly with trade partners that have deals with the EU. Most of these deals are rollovers of existing arrangements, although there are some marginal improvements. Beyond this, a key potential opportunity resulting from Brexit was new trade agreements with non-EU trade partners who did not have EU trade deals, such as the US and India.
Yet, although the UK has concluded a deal with Australia, progress on these much more critical deals has not looked promising. On 20 September 2022, Liz Truss stated that no US trade deal was on the horizon. As the UK’s largest non-European trade partner overall, the US is a key potential target. However, the US has been unwilling or unable to sign a trade deal under the previous or current administration. While a trade deal with India is much closer, recent deadlines have been missed, and it looks uncertain when and if it will be finalised.
The OBR cautioned against promises of new trade deals, such as those with the US and India, having ‘a material impact’ on economic growth and stated that even if these deals go through, they might not have a transformational impact but instead warned that ‘any effect will be gradual’. In the end, as the OBR has cautioned, these deals will not make a material difference in trade and will not make up for the lost trade from the EU.
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