By Saif Ullah, Researcher in the City of London Research Team
The Government’s recent publication of its Brexit White Paper (02/2017) confirmed their intentions to withdraw the UK from the EU’s Single Market and seek a new customs arrangement and free trade agreement with the trading bloc. While much uncertainty resides over how long it will take to negotiate a trade deal with the EU once Article 50 is triggered (let alone how similar any trade deal will be to the current terms enjoyed within the Single Market), the Government has also made clear its ambitions to create a ‘Global Britain’, creating new free trade arrangements with countries around the world.
Over the last few days, I’ve been interested in understanding what this vision for a global Britain might mean for the UK’s financial services and insurance (FS) trade, one of the economy’s most important exports. In particular, what do historical patterns of trade in FS say about potential opportunity markets for the UK? Has there been significant growth in particular markets for financial services exports outside of the EU?
The Office for National Statistics (ONS) Pink Book provides a good level of detail on sector trade. Usefully, ONS has recently published a short time series of data looking at the types of services exported by the UK to trading partners between 2007-15.
The first chart below highlights the growth of FS trade more generally over the period, as well as FS trade surplus. In absolute terms, FS exports have increased by £6.8bn (12%) over the period, although they peaked in 2013, reaching nearly £70bn.
Similarly, looking at the trade surpluses generated by financial services since 2007 (i.e. the difference between the value of FS exports and imports), the FS trade surplus has increased by £9.4bn over the period (21% growth), with the surplus peaking in 2012.
The next chart shows what the UK’s major markets for FS exports outside of the EU have been between 2007-15. I’ve chosen three years across the period to illustrate the change in FS exports: 2007, 2011 and 2015. The United States has been by far the UK’s biggest FS export destination, reaching £17.2bn in 2011.
Other markets have been become major recipients of the UK’s FS trade. Japan is now the second largest recipient of UK financial services outside the EU, importing nearly £3.5bn worth of services in 2015. Switzerland (£1.8bn in 2015) and Russia (£1.1bn) have both also become valuable markets. FS exports to Canada have declined in recent years – having peaked at around £2.3bn in 2012, they have since fallen to around £670m in 2015. Elsewhere, Asian economies such as China (£262m in 2015), Hong Kong (£506m), Singapore (£420m) and South Korea (£204m) have become increasingly important markets, while FS exports to Taiwan (£156m) have grown over the last two years.
The final chart below shows the countries where there has been the biggest percentage increase in growth across two periods, 2007-2015 and 2011-15, alongside the level of UK’s FS exports to major markets in 2015. This helps provide some direction of travel in terms of growth of FS exports to particular markets across the period, against the absolute amounts exported to those countries.
The chart shows that Japan has been the biggest market for expansion of FS exports, both across the whole period (2007-15) and over the last five years (2011-15). FS exports to Japan tripled between 2007-2015 and doubled between 2011-15. Other markets where the UK was able to expand its FS exports over the period were Russia (24% growth 2007-15), China (30%) and South Korea (63%). Across the whole period, FS exports to the United States expanded by 16% but declined by 6% between 2011-15 (despite remaining the UK’s biggest FS export market by a significant amount in 2015), while FS trade with Canada has fallen by 55% since 2007.
Overall, the data highlights the importance of UK financial services trade, which generates a huge surplus for the economy, and the growing value of trade with nations outside of the EU. The charts show that, while countries such as the United States and Canada remain major recipients of the UK’s FS exports, other economies such as Japan, China, Russia and South Korea are becoming increasingly important growth markets. In the coming years, with Brexit looming and uncertainty over the level of access UK-based financial services companies will have with major European markets, such economies may offer increased export potential for UK financial services given the already developing market.