UK trade in 2018: Trade deficit widens

The Office for National Statistics (ONS) published its ‘Pink Book’ at the end of October 2019. It looks at the UK’s balance of payments and allows us to see detailed statistics on UK trade in 2018.

Here we examine the UK’s trade in 2018 compared with recent historical trends, as well as its geographical pattern.

Who does the UK trade with?

Taken as a bloc, the EU is the UK’s largest trading partner. In 2018
the EU accounted for 45% of UK exports and 53% imports.

Looking at individual countries, the USA is the UK’s largest export
market, accounting for just under a fifth of UK exports in 2018. Germany was
the UK’s largest source of imports, accounting for 12% of UK imports, just
ahead of the USA on 11%.

Of the UK’s ten largest trading partners in 2018, seven were EU
member states.

A widening of the trade deficit

In 2018, the UK imported more than it exported.

£642 billion worth of goods and services was exported from
the UK in 2018, and £680 billion was imported, resulting in a trade deficit of
-£38 billion.

This represents a widening of the UK’s trade deficit from
-1.2% of GDP in 2017 to -1.8% in 2018 and is the UK’s highest trade deficit to
GDP ratio since 2010.

We
can analyse this growth in the UK’s trade deficit in two ways – in terms of the
geographical pattern of trade and in the difference between trade in goods and
services.

Goods vs services

One
reason for the UK’s increased trade deficit was a growth in the trade deficit
in goods, accompanied by a fall in the value of the UK’s trade surplus in
services.

In
recent history, the UK has recorded a trade deficit in goods, partly offset by
a trade surplus in services. The UK has now recorded a trade deficit in goods
every year since 1983, a trade surplus in services every year since 1966 and an
overall trade deficit every year since 1998.

In
2018, the UK exported £345 billion of goods and imported £487 billion,
resulting in a trade deficit of -£142 billion. This was equal to -6.7% of GDP,
up slightly from -6.6% in 2017. The UK has now recorded a trade deficit in
goods every year since 1982.

The
value of the UK’s trade surplus in services fell from £111 billion in 2017 to
£105 billion in 2018, equivalent to a fall from 5.4% to 4.9% of GDP. 

The UK’s increased trade deficit in goods was driven by an increase in the value of imported goods, from £473 billion in 2017 to £487 billion in 2018. This was partly driven by increases in the value of fuel imports – the value of both oil and gas imports increased by around 20% between 2017 and 2018.

The
narrowing of the trade surplus in services was driven by a growth in service
imports.

While
the value of UK service exports remained fairly consistent between 2017 and
2018, imports of services grew by 6%, from £181 billion to £193 billion.

This
was driven by a growth in imports of financial services, which grew by 15% (from
£14 billion to £17 billion), as well as imports of transportation services
which grew by 13% (from £22 billion to £26 billion) and other business services,
which grew by 5% (from £60 billion to £63 billion).

Geographical pattern of the UK’s
trade deficit

Another
way of looking at the UK’s increased trade deficit is in terms of changes in
the geographical pattern of UK trade.

In
recent history, the UK has recorded a trade deficit with EU countries, partly
offset by a trade surplus with countries outside the EU.

In
2018, the UK recorded a trade deficit with EU countries of -£66 billion, up slightly
from -£65 billion in 2017. However, 2018’s deficit with the EU was equal to
-3.1% of GDP, down slightly from 2017 and the lowest deficit to GDP ratio with
the EU since 2014.

The UK’s trade surplus with non-EU countries has generally declined in the last few years, from a high of £43 billion in 2015 to £29 billion in 2018. 2018’s surplus was equal to 1.3% of GDP, its lowest level since 2012.

One
reason for this was a marked increase in the UK’s trade deficit with European
countries outside the EU. While the UK’s trade deficit with the EU remained consistent,
the deficit with non-EU European countries jumped from -£8 billion to -£13
billion. This was in part due to widening of the trade deficit with Russia, which
reached -£4 billion, reflecting an increase in the value of fuel imports.

The
UK’s deficit with Asian countries remained consistent, as did the UK’s surplus
with the Americas, whereas UK trade with African countries went from a £4
billion surplus in 2017 to a deficit of -£0.3 billion.

Overall, the UK recorded a trade deficit with Europe (both EU non-EU
countries combined), Asia and Africa; surpluses were recorded with the Americas
and Australasia and Oceania.

Further reading

The geographical pattern of UK trade, The House of Commons Library

Statistics on UK trade with the EU, The House of Commons Library