ALEX BRUMMER: Whenever anyone refers to post-Brexit trade chaos, it is worth remembering that UK was in EU for five decades – trading places takes time
- Disentangling Britain’s trade performance post-Brexit is complicated
- At first glance, Britain’s first quarter current account deficit looks out of whack
- Notion that balance of payments responsible for decline on pound is misplaced
Disentangling Britain’s trade performance post-Brexit and the pandemic is hugely complicated. Anyone travelling to Dover and viewing the lorries stacked up could testify that customs arrangements are far from settled. That’s before considering the trade confusion created by the Northern Ireland protocol.
An acquaintance who runs a thriving British natural beauty manufacturer had to invest in a warehouse and distribution centre in Rotterdam to overcome administrative problems. The firm did come up with a solution but it required time and money.
Indeed, whenever anyone refers to post-Brexit trade chaos, it is worth remembering that the UK was in the EU for five decades, and that when we first became part of the Common Market, the balance of payments – a key measure of a nation’s economic performance – was unreliable.
A fine line: It is worth remembering that the UK was in the EU for five decades
At first glance, Britain’s first quarter current account deficit, calculated at 8.7 per cent of national output, looks nastily out of whack.
And, as former governor of the Bank of England Mark Carney pointed out, the UK’s overseas financing needs make us terribly dependent on the kindness of strangers. There is nothing to suggest that kindness is being tested. Unlike Italy, where the European Central Bank is having to apply a large band aid, HM Government is having no trouble selling gilt edged stock. Foreign direct investment is rolling in, whether it be Singapore wealth funds snapping up central London property, American sports franchises buying Chelsea FC or pharma concern Moderna establishing a R&D facility.
The ONS breakdown of the data shows that net inflows into the UK in the first quarter of 2022 stood at £29.6billion or 4.8 per cent of national output. That substantially reduces the amount of net borrowing required to fund the current account deficit.
The goods deficit did soar in the first quarter to £61.1billion, but the numbers will have been swelled by higher prices for imported energy and other commodities. Services remain strong, producing a surplus of £35.2billion in the first three months of the year, up £2.8billion on the previous period.
The most recent data for April (which excludes capital flows) shows that in spite of unusually high energy costs, the trade shortfall is actually narrowing.
Clearly, a current account deficit on the scale experienced in the first quarter cannot be a good thing. The notion, however, that the balance of payments is somehow responsible for the decline on the pound this year is misplaced. The pound’s weakness is the corollary of dollar strength, which also has dragged down the value of the yen and euro. In a past age, finance ministers and central bankers might have been summoned to the Plaza Hotel in New York to knock the dollar down and stabilise markets.
That would require global leadership. There isn’t much of that around.
Continental Europe has long been less friendly to overseas takeovers than the UK. Private equity barons were famously labelled as ‘locusts’ when they set sights on German firms in 2005. France determined that yoghurt maker Danone was a strategic asset when it was targeted by Pepsi Cola. Fearful of European capitalism being contaminated by state-backed overseas takeovers, the EU has introduced rules to prevent foreign state firms with turnover of more than €500m being bought by subsidised companies.
Imagine if Britain were to introduce similar rules. One of the more bizarre outcomes of UK privatisations is that so many assets have fallen into the hands of state-backed foreign owners. The French government owns 84 per cent of EDF, the UK’s biggest electricity supplier, owner of our nuclear fleet of power stations and builders of the super reactor at Hinkley in Somerset. German national railway Deutsche Bahn, owned by the Berlin government, controls several UK rail franchises. It also runs bus networks in London, the North East and other parts of the country. French state railway operator SNCF is the majority owner in Eurostar.
Many UK ports, airports, water companies and other utilities are controlled by entities from across the world.
Imagine the tumult if we followed an EU lead and had to unwind that lot!
The M&S embrace of Clarks shoes for kids, and popular childrenswear brands Smiggle and Hype is no accident. It turns out that ‘Back-to-School’ is the third biggest retail event of the year after Christmas and Easter. Who would have thought.