Week 13, 2013: UK Trade Balance

Summary: The UK's trade deficit widened slightly at the end of 2012 as both the balance of goods and the balance of services declined, driven mostly by a fall in the value of exports.

What does the chart show? The balance of trade is the difference between total exports and total imports (or net exports). A positive number means exports have exceeded imports, and vice versa. The grey line shows the total quarterly trade balance as a percentage of GDP. The red and blue lines show the trade balance in services and goods respectively, also as a percentage of GDP.

Why is the chart interesting? Over the past 50 years, the shape of the UK's trade balance has changed dramatically. The trade of services has consistently produced a surplus, but grew in importance particularly during the past decade, when net exports rose from 2% to 5% of GDP. Although the trade of goods has always been volatile, it has been producing bigger and bigger deficits since around the mid-1990s with no sign of recovery as we continue to import more and export less. Since the financial crisis in 2008, the growth in our services balance has largely disappeared, and there has been no great recovery in the goods sector.  The conclusion is obvious: we can't hope to rely on foreign demand to provide the growth the economy needs.