Insufficient Growth in Services Exports Leads to Widening of UK Trade Deficit

April 22, 2024

The UK’s trade deficit has expanded since 2010, despite robust growth in exports from the services sector, according to a recent analysis from the Office for National Statistics (ONS).

The trade balance, which measures the gap between exports and imports, has widened from 0.2 per cent of GDP in 2010 to -2.2 per cent by the end of last year. This shift means that imports now exceed exports by a significant margin.

One key contributor to this deterioration is the widening trade deficit with the EU, which has grown from -1.1 per cent of GDP in 2010 to -4.5 per cent by the end of 2023. Weakness in goods exports, particularly outside of machinery and transport equipment, has been a major factor driving this trend.

In contrast, the UK has consistently maintained a trade surplus with non-EU countries, driven largely by the strength of its services exports. Services exports have more than doubled the level of imports over the years. Despite the overall trade imbalance, the services sector has shown strong performance, with services exports growing at a rate of 3.8 per cent annually between 2010 and 2019. 

Various types of services have experienced export growth, notably construction services, telecoms, and computer and information services. While most service types have recorded positive growth since 2010, some areas such as transport, financial services, and government services have seen declines. Recent United Nations data highlighted the importance of services in making the UK the world’s fourth-largest exporter. This reflects the strength of the services sector in offsetting weaknesses in goods exports and contributing positively to the UK’s global trade position.