A year ago, there appeared to be a decent chance the UK would enjoy an export-led recovery. Export volumes, excluding oil and erratic items, were up 18% on a year earlier, boosting growth in manufacturing. Real GDP was increasing strongly.
Now the picture is far less positive.
The latest figures on trade, released by the Office for National Statistics, show export volumes increased just 3.7% over the last year, and were down 2.8% comparing the latest three months with the previous three.
Import growth was 3.6% over the last year – just about matching export growth – and 1.1% over the latest three months. The export boost to growth has faded away.
In part as a result of this trend, growth in manufacturing output has come to a halt this year. And real GDP increased by just 0.2% over the last three quarters (with the OECD predicting only minimal growth in the second half of the year).
Given that around two-thirds of the UK’s exports go to the rest of Europe, it would be reasonable to assume the drop off in export volume growth was largely the result of turmoil in the eurozone.
But this would be wrong. Exports to EU countries are up 5.3% over the last year (0.9% in the last three months), while exports to non-EU countries increased by only 1.8% (and fell by 6.5% in the last three months).
The UK has had a persistent trade deficit for most of the last 25 years, so the desire to rebalance the economy towards exports is understandable and to be supported.
However, these latest figures show it can be risky to depend too heavily on exports to lead the UK’s recovery. Domestic spending needs to be supported too – particularly during periods of weakening external demand like the present one.