Financial services UK’s fastest growing export to 2026 says Barclays Trade Index

News | 25 April 2016

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While the UK government’s ambitious target of boosting the annual value of UK goods and services exports to £1trn by 2020 looks less than likely, recent research from Barclays Trade Index suggests there is a possibility of doing this by 2026 – albeit fuelled by exports of financial services.

The report, published on 21 April 2016, seeks to “uncover the changing mix of UK trade over the next decade by identifying the most promising sources of growth across the goods and services industries and charting the evolution of the UK’s main trading partners”.

UK trade growth, all scenarios, 2006 to 2026

Top five export categories by value (£m)

 

Key findings include:

  • The UK will likely see slower growth in goods and services exports over the next ten years, amid a global slowdown in trade. The reduced pace of growth versus the last decade largely reflects the structural slowdown in China and other emerging markets, alongside more subdued global trade and aggregate demand. Heightened financial market and geopolitical uncertainty and high private-sector indebtedness add to the challenge.
  • Average growth in services exports will easily outpace average growth in goods exports. The share of services exports in the UK’s total export mix will rise steadily, and by 2026 will for the first time account for about half of all UK exports. This will put the UK in contention as the global leader for services exports.
  • Business management and consulting, insurance and pensions, and education will be the UK’s fastest-growing export categories to 2026. The size and comparative advantages of the City of London versus other financial and services centres will support growth across a range of high-value support services. These sectors will also benefit from improving links with the creative services sector, ageing demographics, regulatory reforms and increased demand for online learning.
  •  Financial services will be the UK’s single largest export sector in 2026, despite most other services growing exports more quickly. Financial services will overtake the machinery and electrical goods sector to become the UK’s single largest export category over the next decade. But growth in the sector will be constrained by the ‘new normal’ following the global financial crisis: tighter regulation, weakened balance sheets, lower profitability, reduced overseas operations and softer credit demand.
  •  Transport will be the fastest-growing goods export sector, reflecting solid demand in the automotive and aerospace industries. Healthy order books and planned automobile model launches and upgrades point to medium-term strength, backed by official funding support and the cachet of ‘Brand UK’. Connected technology and energy efficiency will help to drive sustained growth, even as competition from emerging-market rivals increases.
  • The US and Germany will remain the UK’s two largest trading partners, but their respective shares of UK exports will decline. The US is by some distance the UK’s largest trade partner of any country – especially in services – and will still be the leading export destination in 2026. Germany will retain its second-place ranking. The modest decline in the market share of the US and Germany will be mirrored in most other mature OECD and European economies, as the UK grows exports more strongly to emerging countries.
  • Despite the share of UK exports to the EU declining, the bloc will remain by far the UK’s largest single trade partner. UK exports to countries outside the EU will grow at a faster pace than the UK’s exports to other EU members over the next 10 years. However, we forecast more similar growth rates between EU and non-EU markets than in the past decade, with the EU accounting for a sizeable 42% of all goods and services exports in 2026.
  • The strongest export growth will be to China, but the pace of expansion will be considerably weaker than for the past decade. This slower pace of overall export growth – albeit still a robust 8% per year – reflects a softening of demand for goods exports, not for services. China’s transition towards a more consumption- and market-driven economy offers opportunities to build on the UK’s strength in higher-value goods and services markets, although access to some sectors will remain restricted and domestic competitor industries will emerge.
  • The allure of the BRIC economies may have dimmed, but India still sits alongside China as an export market of huge potential. Other key emerging markets to watch in the decade ahead include Vietnam and Indonesia within the broader ASEAN region, as well as post-sanctions Iran. In Europe, meanwhile, the Baltics, Czech Republic, bulgaria and Romania, although small, will also offer growth opportunities.  
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