Understanding recent developments in UK external trade

Kishore Kamath () and Varun Paul ()
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Kishore Kamath: Bank of England

Bank of England Quarterly Bulletin, 2011, vol. 51, issue 4, 294-304

Abstract: The sterling effective exchange rate depreciated by around 25% between mid-2007 and early 2009. That has encouraged a shift towards UK exports and away from imports, contributing to a significant narrowing in the United Kingdom’s real trade deficit. This article explains these developments in more detail. It shows that the depreciation has induced considerable switching of expenditure by overseas companies and households towards UK goods exports, and by UK residents away from travel services imports. But financial services exports appear to have suffered from the financial crisis. And there seems to have been less of a response to the exchange rate depreciation in other services exports and non-travel imports. Looking ahead, both the level of sterling and developments in the rest of the world are likely to be crucial to the United Kingdom’s trade performance.

Date: 2011
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