By Economic Times Editor: Yes, that headline is correct. The UK’s trade performance this year fell to its worst level since records began in 1955. And the cause, according to analysts and a headline article in the FT today – Brexit.
This is not about the effects of Covid, the bottlenecks in the supply chain, staff, the weather or anything else. It’s Brexit.
This latest data heaps yet more pressure on Britain’s currency in international currency markets.
The FT reports that – “The country’s current account deficit was calculated at 8.3 per cent of gross domestic product in the first quarter of 2022, a deterioration from an average of 2.6 per cent across all of 2021. It was the worst figure on record since quarterly balance of payments data was first published in 1955. The weak performance of UK exports and a surge in imports highlight the economic effects of Brexit. The figures tally with academic studies that show a decline in exports since 2021, when the UK left the EU single market and new border controls were introduced.”
The Office for National Statistics changed a few things in its data collection and developed a new system based on customs records to increase accuracy. Even when relatively volatile goods such as gold and other precious metals were excluded, the current account deficit still rose from an average of 2.4 per cent of GDP in 2021 to 7.1 per cent in the first quarter of this year.
The gaping current account deficit reflects only one thing required to make the assumption that something is working against the economy – a record imbalance of imports and exports.
It gets worse because there were also deficits in investment income and transfers of money between countries. In other words, investors are losing confidence in both the economy and Britain’s currency.
Former Bank of England governor Mark Carney warned repeatedly after the Brexit referendum that the value of the pound depended on the “kindness of strangers”. He was shouted down by Brexiteers and Tory MP alike at the time.
Britain requires the confidence of external finance as a result of its large current account deficit. What sterling has demonstrated by depreciating sharply as it has is that global investors have collectively shunned what they now define as a risky asset. The pound has lost more than 10 per cent of its value against the US dollar over the past year but never recovered from its dramatic fall in value since the EU referendum.