Whatever happened to the UK’s promised export boom? Well, exports are up and have reached record levels, but imports have also exceeded previous highs and a string of shockingly high deficits is roughly unchanged. We continue to import more than we export and are running a perpetual trade deficit.
The UK has offset its trade deficit with income from abroad for some time. The legacy of empire is still enjoyed by many companies and investors, who own assets in foreign lands and repatriate the gains to the UK.
This positive effect on our current account has waned sharply since the financial crash, however, and the future looks less rosy.
Stephen King, HSBC’s chief economist, is pained by the 5% deficit, which he argues should be down to zero or positive in the wake of a severe recession.
His concern is that deficits grow in times of plenty as shoppers consume ever more imported goods. Much better to start from a position of equilibrium or even a positive balance before the situation worsens.
A proper recession, one in which falling wages or mass unemploymentthat wipe out people’s incomes in aggregate, cuts the import bill dramatically. It is a situation we can see in Greece, Spain and Portugal, where the dire economic and financial situations they find themselves in have at least improved the trade balance.