How important is the European Union to UK trade and investment?

Source:http://www.ons.gov.uk/ons/rel/international-transactions/outward-foreign-affiliates-statistics/how-important-is-the-european-union-to-uk-trade-and-investment-/sty-eu.html

26 June 2015

A brief analysis of the UK's trade and foreign direct investment relationship with the EU

How large is the EU Economy?

Since its formation in 1993, the European Union¹ (EU) has become larger than any individual economy in the world, with its GDP surpassing the USA’s in 2003, for the first time since 1998, as shown in Figure 1. Despite this, the EU’s share of global GDP has fallen from 30% in 1993 to 24% in 2013. This is because growth in non-EU economies has outpaced growth of EU economies, mainly driven by strong growth in the BRIC (Brazil, Russia, India and China) economies.

             

How important is the EU to UK trade?

The UK has traditionally had strong trade links with the EU. Despite changes in the composition of the global economy, the EU in 2014 accounted for 44.6% of UK exports of goods and services, and 53.2% of UK imports of goods and services. However, strong economic growth in many developing economies outside the EU has resulted in non-EU economies growing in importance to UK trade, with the proportion accounted for by the EU falling consistently since 1999, despite the value of EU trade increasing.
Exports from the UK to EU and non-EU countries have grown on average by 3.6% and 6.5% respectively in each year between 1999 and 2014. However, the stronger export growth to non-EU countries has resulted in the proportion of UK exports destined for the EU falling from 54.8% in 1999 to 44.6% in 2014. Growth in the value of UK imports of goods and services from EU and non-EU countries is more comparable, growing on average by 4.7% and 5.5% respectively in each year since 1999.
Faster growth in the value of UK imports compared to exports with the EU has resulted in the UK’s overall trade balance with the EU deteriorating (value of imports exceeding exports), with the trade deficit widening notably, reaching £61.6 billion in 2014 compared with £11.2 billion in 1999, as shown by the black dotted line in Figure 2.
UK trade with the EU is dominated by goods rather than services; in 2014, trade in goods represented close to two-thirds of all UK exports to the EU, and over three-quarters of total UK imports from the EU. Between 1999 and 2014, goods imported by the UK from the EU have risen by 4.9% per year on average, compared to exports which have risen by 2.5% per year, causing the UK’s trade in goods deficit with the EU to rise to £77.0 billion.
Although the UK has historically recorded a trade in goods deficit with the EU, its trade in services balance with the EU is much more favourable, running a surplus in each year since 2005, which reached £15.4 billion in 2014.
UK exports of goods and services to non-EU countries have grown at a faster rate than imports, driven largely by services exports. This has resulted in the UK running an overall trade surplus with non-EU countries (value of exports exceeds imports) over the past three years, which reached £27.8 billion in 2014, as shown by the grey dotted line in Figure 2.

Figure 2: UK exports and imports to EU and Non-EU

Source: Office for National Statistics

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How important is the EU to UK foreign direct investment?

Between 2004 and 2013, the net stock of assets held by UK residents and businesses overseas grew by an average of 5.4% per annum, but this was outpaced by growth in the net stock of assets held by overseas residents and businesses in the UK, which rose by an average of 11.6% per annum. This resulted in the UK’s net position with the world – that is, UK net assets held overseas minus net overseas assets held in the UK – declining by an average of 15.9% per annum over the same period.

In to their respective pre-downturn peaks. More recently, EU earnings have risen since 2012 and surpassed their pre-downturn peak in 2013.