Chart 1: UK Trade balance, 1948-2017 - Goods and services, E millions


Source: ONS


The services sector now dominates the UK Economy, making up around 80% of GDP. London is classed as a major centre for international business and commerce. It is one of the three ‘command centres’ of the global economy, alongside New York City and Tokyo. Along with the obvious banking services, London also houses four of the six largest law firms in the world. The result of this is the following UK Trade Balance:


Recent PMI reports indicate that despite the uncertainties related to EU negotiations, the UK’s dominant service sector continues to show solid growth according to Chris Williamson, chief economist at IHS Markit, which casts some doubt over Brexit’s actual impact. This is positive news considering that since 1973 the ratio of UK trade to economic output has increased from 48% to 67%. It is all the more remarkable for the fact that 44% of UK exports go to other EU member countries, and of the UK’s current top 10 trading partners, EU member countries account for 63% of total trade. These facts may lead us to believe that the UK leaving the EU is possibly an uninformed decision. But one only has to look at Germany to see that even though a country is a member of the EU, its economy is not beholden to it. In 2016 Germany recorded the highest trade surplus in the world worth $310 billion; its service sector contributes around 69% of its total GDP, which is not far behind the UK and its largest trading partners are not members of the EU. Germany’s successful economy is more complicated than just its apparent non-reliance on the EU, as it is a leading advocate of European economic and political integration, and there are also factors such as its incredibly strong manufacturing industry. But it nonetheless serves as an interesting example.


In light of this, it could be time to revisit the legacies of Britain’s history. The Commonwealth is vast – accounting for almost a third of the world’s population at 2.4 billion and includes countries that range in size from India with 1.26 billion people to Tuvalu (with just 100,000). The Commonwealth far outstrips the size of the EU which is estimated at 512 million in comparison. It represents an opportunity not open to our other EU peers, and its London based administration estimates that trade between its


members is already 19% cheaper than global trade, due to soft efficiencies such as shared language, laws and standardized consumer products. However the Commonwealth will not be an easy saving grace. It currently makes up a very small proportion of British trade and there is the further issue of Commonwealth countries such as India and Pakistan having specially negotiated access to the EU market due to Britain’s membership. As such maintaining this access may be the Commonwealth’s priority rather than making new trade deals with its old master.


Although the future of the UK economy does appear to be uncertain and certainly not that easy to negotiate, this does not necessarily mean that it is bleak; and if there is a lesson from the UK’s recent history, it is that the UK once again needs to get creative. It is always important to look outwards, but the Thatcher years showed that getting your own house in order first tends to be a very good place to start. There are indeed examples from the UK’s EU peers from which it seeks to distance itself, that could provide answers to a future that is not so closely linked with them. In the modern world service economies do not require old trading routes, nor are they held hostage by freight spreads. Maybe the OECD predictions of 2015 may not be as ‘lost’ as they appear to be.


Lauren Judd E: lauren.judd@adm.com T: +44 1322 444 820


15 | ADMISI - The Ghost In The Machine | September/October 2018


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