What lies ahead – challenges for UK trade in 2023
Released On 4th Mar 2023
The challenges facing UK exporters in 2023 are significant and it will take a concerted effort by our global network, working alongside the UK Government, to positively shift the dial.
In 2022, exports increased by 6.7%, once the effect of inflation was removed, but this is still less than the value of goods and services the UK sold overseas in 2018.
There were also warning signs in the data for the last quarter of 2022, with UK exports falling by 2.9% as economic headwinds continued to blow.
For 2022, as a whole, the total annual trade balance in goods and services, excluding precious metals, widened by £85.3 billion to a deficit of £108 billion, when compared with 2021.
The latest BCC data for Q4 of 2022 also paints a stark picture:
- Most Small and Medium Sized Enterprise (SME) exporters reported no improvement to exports, with 27% reporting decreased export sales in the quarter and 47% reporting no change.
- Only 26% of SME exporters saw increased export sales.
- The picture for future orders was even weaker with 28% reporting a decrease against 24% an increase.
With the World Trade Organisation forecasting global trade growth of just 1% in 2023, down from 3% in 2022, then it would appear there is little to cheer.
While China’s reopening should ease production supply chains in the long-term, its suddenness could also add to the volatility, and it may create additional supply chain turbulence - if the Covid pandemic continues to impact its economic output.
But there are some signs of better times ahead. The International Monetary Fund in its World Economic Outlook update in January indicated that global demand may pick up again - particularly in the second half of 2023. GDP growth in China is forecast to be 5.2% in 2023, and 6.1% in India (picking up to 6.8% in 2024).
If consumer spending does pick up in China, and beyond, then there could be the potential for higher export sales carrying on into 2024. Top UK goods exports to China include vehicles, machinery, electrical equipment and pharmaceuticals.
Other export markets which UK firms should be keeping an eye on are the EU, US, Switzerland, Canada, Norway, South Korea and Japan.
But the outlook remains uncertain, and the UK Government must fight the corner of small and medium-sized export firms.
Issues on customs processes and checks arising from the Northern Ireland Protocol require speedy, stable, and certain resolution, as it still looms over the UK’s relationship with both the EU and the US.
Outside of the EU, the US is our biggest trading partner, and the one that BCC members tell us they are most interested in. Yet progress on free trade talks is stalled, meaning that other, innovative ways to improve trade relations will be needed.
And as the Good Friday Agreement silver anniversary looms, the UK has a golden opportunity to transform our trading relationship with our two biggest export markets in one fell swoop.
Resolve the outstanding protocol issues and it should have benefits for UK businesses exporting in both east and west directions, as well as for Northern Ireland.
This could also help pave the way to dealing with a further challenge that has reared its head on US trade relations.
Recently it has taken a more ‘America First’ stance in certain sectors. The Inflation Reduction Act is a new system of tax credits for buying domestic or North American produced goods or components within supply chains.
The EU has spoken out and is engaged in continuing dialogue with the US on protecting its market access and retaining competitiveness. It has also raised the prospect of its own new Net Zero Industry Act which would look to create ‘conducive conditions’ for sectors crucial to Net Zero.
Measures proposed by the European Commission in recent weeks are being considered by member state governments and trade policy is being discussed in March’s meeting of Heads of Government in the European Council.
While the eventual outcomes of this transatlantic policy dialogue remain to be seen the UK Government must ensure that UK businesses are not left out in the cold and our own trade interests are represented in future decisions on supply chain tax credits, subsidies, and investment opportunities.
We must also do all we can to prevent an overly protectionist mindset taking hold in our major trading partner economies. The commitments made in our trade agreements on level playing fields and open, transparent subsidy systems and controls need to be implemented in their spirit as well as in their words.
The UK, EU and US have common interests around climate change and the green transition. More must be done in 2023 to ensure the rules, facilitating trade in renewables and green goods and services, work to meet the demand of both US and EU consumers and UK exporters.
Action is also needed to digitalise trade this year bilaterally, and through action at the World Trade and World Customs Organisations.
The UK Government must also finally grasp the nettle and look at changes to the Trade and Co-operation Agreement with the EU, to make our exports more competitive, and with lower compliance costs and red tape burdens.
There are straightforward changes that can be made to the Brexit trade deal - in areas such as checks on food exports and VAT requirements that could make a real difference.
Financing for export opportunities needs to be looked at afresh. The time, planning and resource a business must invest in making an effective entry into a new overseas market is a barrier for many smaller firms.
The UK Government should look at how it can be made easier for firms to access effective end-to-end finance to invest in scaling-up their export activity. A key focus must be supporting the expanding world of innovative new green products and services as a major route to growth.
The Chamber network and our wider global affiliates have a huge amount of experience in international commerce, and we can act as a trade accelerator for the Government if it wants to maximise new overseas opportunities for UK business.
The year ahead is likely to be one of the most difficult for trade in recent memory even as supply chain disruption unwinds, and Chinese production and trade routes slowly reopen.
But the right action now could put the UK in the exactly the right place to take advantage of the new market in greener products and services that are set to be major growth areas for UK trade for years to come.
