15.4 UK trade: rising deficit with the EU, surplus with the Rest of World

The UK surplus on its trade with the USA rises for the fourth year running. But the deficit with the EU continues to rise.

(I) UK trade balances analysed by category, by EU/non-EU & world, 1999-2005

The official trade statistics¹ confirm that in 2005 the UK, on its trade with the 24 other EU countries (absorbing about 40 per cent of the UK's worldwide exports), was once again in heavy deficit. On its trade with non-EU countries (absorbing about 60 per cent of UK exports) the UK was in surplus (Table1).

Not only that: the overall deficit with the EU deepened, going from under £1bn in 2001 to over £32bn in 2005 (Table 2). That overall deficit is caused mainly by the deficit on trade in goods:  for every £100 of goods the UK sells to the EU, the EU sells £130 of goods to the UK. Another component of the UK deficit with EU24 is the UK's net contribution to EU institutions, which, in 2005, was £6.1bn, an increase of 20% on the £5.1bn paid over in 2004. In 2005 the UK gross contribution was a record £15bn, of which the UK received back £8.9bn from "Brussels".

The single biggest country component of the deficits with the EU (and with the whole world) is the deficit with Germany, (£16.6bn in 2005).  That deficit accounts for 52% of the overall deficit with EU24 (including EU Institutions) and is mainly in trade in goods.  For every £100 of goods that the UK sells to Germany, Germany sells £170 of goods to the UK.

Outside the EU, the UK's main trade deficits in 2005 were with China (£9.2bn), Norway (£9.0bn), Japan (£3.0bn) and Russia (£2.2bn).

In contrast, outside the EU, UK is in substantial - and growing - surplus on its trade with the USA: £19.5bn in 2005, its biggest trade surplus worldwide. The UK was also in surplus with Australia (£3.5bn).

In 2005 exports of goods accounted for just 40 per cent of the UK's worldwide exports, followed closely by receipts of income, which accounted for another 36 per cent.  Exports of services represented another 21%, the remaining 3% being transfers.

Table 1: UK Trade Balances by Category in 2005 (£bn)

Source: Pink Book 2006¹: Table 9.1: pages 122-124.

Table 2:  UK Trade* Balances 1999-2005 (£bn) 

Source: Pink Book 2006¹: Table 9.2: page 127.

(II) Analysis of the UK Trade Deficit with its EU "partners"

On 1 January 2007 the EU became a 27-member organisation. Fifteen ("Old EU" or "EU15", including the UK), were members pre-2004. Ten (EU10) became members in May 2004. Romania and Bulgaria (EU2) joined in January 2007.

In 2005, the UK had trade deficits with EU14 (EU15 less the UK) as a whole, with EU10 as a whole and with EU2 as a whole (Table 3.)

Within EU14, the UK was in deficit with ten countries, and in surplus with four (Ireland, the Netherlands, Sweden and Luxembourg).  Within EU10, the UK was in deficit with nine countries, and in surplus (just) with Slovenia. With EU2, the UK was in deficit (just) with both Romania and Bulgaria.  Thus, out of her current twenty-six EU partners, the UK had trade surpluses in 2005 with only five countries.

Table 3: UK Trade with EU-26: 2005 (£bn)

Source: Pink Book 2006¹: Table 9.2, pp 125-127

(III) Trade deficit with EU means 700,000 fewer UK jobs

The UK Government claims that "[over] three million British jobs are linked to EU exports"² (i.e. exports to the EU).  If British exports of goods & services to the EU do indeed sustain 3 million UK jobs, by the same reasoning EU exports to the UK displace 3.7 million UK jobs (Table 4).

The net impact on the UK economy is therefore unequivocally NEGATIVE, the UK trade deficit with the EU resulting in 700,000 fewer UK jobs than would have been the case had British trade with the EU been in balance.

Table 4: UK Trade in Goods & Services with EU24 in 2005

Source: The Pink Book 2006¹: Table 9.3, pp 129-131

References

1. United Kingdom Balance of Payments: The Pink Book 2006: Office for National Statistics, July 2006. ISSN: 0950-7558. Free download: http://www.statistics.gov.uk/ > Browse by Theme > Select Theme > Economy > Go > More detailed topics for Economy > Balance of Payments > United Kingdom Balance of Payments: The Pink Book > Pink Book 2006

2. In speech by the Minister for Europe (Rt. Hon Geoffrey Hoon MP) to the Centre for European Reform, London 14^th June 2006.

IM, February 2007.