Jump in Exports to the EU Not Enough to Halt Expansion of UK's Trade Deficit

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Although the UK saw a jump in exports to the EU in May and June a surge in imports meant the country saw its trade deficit expand the second quarter.

Exports of goods to the EU, excluding precious metals, were above pre-Brexit levels in May and June 2021, according to official figures.

Exports to the EU rose £1.2BN (9.1%) to £14.1BN in May 2021, followed by a further £0.2BN (1.2%) to £14.3BN in June 2021.

"One piece of good news is that UK exports to Europe have continued to recover after their turbulent start to the year - and, in fact, are now back to pre-pandemic levels once precious metals are stripped out," says James Smith, Developed Markets Economist at ING.

"That suggests that businesses have largely adapted to the new processes, and a good acid test of that is that food exports are essentially back to late-2020 levels," he adds.

But total exports of goods, excluding precious metals, fell by £0.6BN (2.2%) in June 2021, driven by a £0.8BN (5.6%) fall in exports to non-EU countries; mainly because of falls in medicinal and pharmaceutical products and cars.

Total imports of goods, excluding precious metals, meanwhile increased by £1.0BN (2.6%) in June 2021 with a £0.5BN (2.7%) increase in imports from EU countries and an increase of £0.5 billion (2.5%) to non-EU countries.

The Office for National Statistics says increased monthly imports of goods from EU countries were driven by cars, while increases from non-EU countries were driven by mechanical machinery.

"Halfway into the year, shipments from the EU are still well down on 2020 levels – and are clearly underperforming shipments from outside the single market. Our initial sense was that this was down to firms running down stocks built up in late 2020, but that should probably have run its course," says Smith.

Looking at details for the second quarter, the ONS says the total imports of goods, excluding precious metals, were £12.8BN (12.4%) higher than the first quarter, with increases in imports from EU and non-EU countries.

In the second quarter the total exports of goods, excluding precious metals, were £9.1BN (12.5%) higher than in the first quarter; driven almost entirely by increasing exports to the EU.

The total trade deficit (excluding precious metals) therefore widened by £3.6BN to £5.2BN in the second quarter.

The trade in services surplus meanwhile increased by £0.1BN to £28.3BN in the second quarter.

"In short, while UK trade has undoubtedly recovered from earlier this year, our sense is the UK is still struggling to fully benefit from the wider recovery in world trade over recent months," says Smith.