Brexit means Brexit. We will sign Jumbo/Titanic/Mega trade deals with the rest of the world… the rhetoric from Mrs May’s cabinet is intoxicating, if a little light on the details. If the UK loses its ability to trade in financial services with the EU (and, potentially other parts of the world since services are not covered under WTO rules) effectively, then its GDP and balance of trade figures will suffer markedly. The situation currently for the nation’s balance of trade as a member of the world’s largest trading bloc is not that rosy.
Figures just released from the Office for National Statistics (ONS) show that the nation’s trade gap with the rest of the world worsened in September, despite the significant decline in Sterling since the referendum which should have made UK exports more competitive in importing markets. The data shows that the UK imported more goods than it exported to the tune of £5.2 billion in September, up from an August deficit figure of “just” £3.8 billion. The value of exported goods actually fell by £0.2 billion despite a weakening of roughly 18% in the value of Sterling against the Dollar since the vote. Unsurprisingly, the weak value of the Pound contributed to an increase in the cost of goods imported to the UK of £1.2 billion.
Of particular note is the fact that the nation’s trade deficit with the EU hit a record level of £8.7 billion whilst the UK remains a full member of the bloc with all the trading advantages that that implies.
The data is a little better if one looks at the total trade deficit between Q2 and Q3 as it narrowed by £1.6 billion to stand at £11 billion.
It is still early days to make any informed comment on the effect of the UK’s vote to leave the EU since it takes a while for business sentiment to take an effect on the data (this should be clearer when looking at employment intentions and inward investment data). It is also totally unclear as to what the government is seeking from its future relationship with the EU which could be anything from (almost) business as usual to a total divorce to a third party trading profile. The decision of the High Court that parliament must approve the triggering of article 50 (now subject to appeal) also does nothing to dispel current uncertainty. The government’s appeal will be heard in December and judgment rendered in January.