Economics - Service exports fell in 2020

The modern UK economy is driven primarily by services, which account for 79% of all activity1 and 85% of all employment2.

Services also account for a large part of UK trade, with service “exports” worth £185bn and imports with £92bn in 2018 – this trade surplus in services helps to offset the UK’s trade deficit in goods.

The trade performance of the services sector is therefore critical to the UK’s overall economic outcome in the post-EU, post-COVID period.

The UK has completed a trade deal with the EU, the Trade and Co-operation Agreement (TCA), but this deals primarily with goods, rater than services.

Services are covered, but only in a limited fashion and there are reservations and exceptions, which vary by country and sector.

In particular, the TCA does not provide for mutual recognition of qualifications between the UK and the EU, though this is mentioned as a future aspiration.

This means that, for example, a UK lawyer wishing to work in France would need to have local qualification and, perhaps, local residency, to advise clients in the EU.

This is not unusual – most trade deals focus on goods, rather than services, but clearly the lack of treaty coverage for services is a challenge for UK service providers exporting to the EU.

New data from ONS, shows that UK trade in services fell sharply in 2020, with both exports and imports affected. Service exports to EU and non-EU destinations both fell.

Interestingly, however, service traders blame either COVID-19 or a combination of COVID-19 and EU Exit for this reduction in activity. EU Exit alone was less likely to be mentioned.

Due to the entanglement of COVID-19 with EU exit, it is not yet easy to see how far – if at all – EU Exit has impacted the UK’s service trade with the EU.

The situation may become clearer when the disruption created by COVID-19 dissipates and more stable conditions return. The UK will not doubt wish to develop the TCA, re-building trade in services.

The EU’s recent decision to allow data exchange between the EU and UK suggest that there is some willingness to create a mutually-beneficial working relationship but it is also clear than relations between the two sides are strained.

1 Contribution to “economic activity” is defined as contribution to overall national Gross Value Added, for SIC codes G-T, at current prices. Data is for 2019, the last “normal” year before EU Exit and COVID-19. Source: ONS.

2 Contribution to “employment” is defined as contribution to overall national Employee Jobs, for SIC codes G-T. Data is average for 2019, the last “normal” year before EU Exit and COVID-19. Source: ONS.