1. Main points

  • Between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017, the total trade deficit (goods and services) widened by £0.1 billion to £8.9 billion as increases in imports were closely matched by increases in exports.

  • The UK’s total trade deficit (goods and services) widened by £2.0 billion between May and June 2017 to £4.6 billion, due to increases in imports of both goods and services; erratic commodities had little impact within the total trade balance on the month.

  • Since the last UK trade release, the total trade (goods and services) deficits for April and May 2017 have been revised down by £0.3 billion and £0.6 billion respectively; this is due to an upward revision to exports of goods in April 2017 and downward revision to the imports of goods in May.

  • Comparing Quarter 2 2017 with Quarter 2 2016, UK goods export and import prices rose by 8.2% and 7.8% respectively and sterling depreciated 8.7% over the same period.

  • Despite higher trade prices and weaker sterling, there were similar increases in export and import volumes of goods, by 5.0% and 4.8% respectively, in Quarter 2 2017 compared with the same period a year earlier.

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2. Things you need to know about this release

Trade is measured through both imports and exports of goods and services. Trade in goods reports the level of import and export activity in general merchandise, goods for processing, repairs on goods, goods procured in port and non-monetary gold. Trade in services covers import and export activity across 12 service sectors. The UK trade balance is the headline figure and is calculated as total exports less imports in both goods and services. The trade balance reflects the overall net position of the UK, describing whether the UK exports more than it imports (a trade surplus) or whether it imports more than it exports (a trade deficit).

Unless otherwise stated, all trade values discussed in this release are in current prices. The time series dataset also includes chained volume measures (series for which the effects of inflation have been removed), and these are indexed to form the volume series presented in the publication tables.

Data are supplied by over 30 sources, including several administrative sources; HM Revenue and Customs (HMRC) covering trade in goods is the largest. For trade in services, data are less timely than trade in goods estimates, and sourced mainly from survey data and a variety of administrative sources. The services data are processed quarterly, so monthly forecasts are made to provide a complete trade total. The most recent monthly data can therefore be considered more uncertain.

Trade statistics for any one month can be erratic. For that reason, we recommend comparing the latest 3 months against the preceding 3 months, and the same 3 months of the previous year.

Oil and other “erratic” commodities can make a large contribution to trade in goods, but often mask the underlying trend in the export or import values due to their volatility. The “erratics” series includes ships, aircraft, precious stones, silver and non-monetary gold. Therefore, we also publish data exclusive of these commodities, which may provide a better guide to the emerging trade picture.

This release has a revisions period back to April 2017 for trade in goods and no revisions for trade in services. This means that we have incorporated additional data for trade in goods for these periods. This revisions period is consistent with the National Accounts Revisions Policy.

The UK Statistics Authority suspended the National Statistics designation of UK trade on 14 November 2014. We have now responded to all of the specific requirements of the reassessment of UK trade and are in the final stages of providing evidence to the Authority. We are undertaking a programme of improvements to UK trade statistics in line with the UK trade development plan that will also address anticipated future demands. While delivering against this plan, we will continue to work with the Office for Statistics Regulation team to regain National Statistics status for UK trade statistics. We welcome feedback on this development plan.

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3. The deficit on trade in goods and services widened slightly to £8.9 billion in Quarter 2 2017

Between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017, the total trade deficit (goods and services) widened by £0.1 billion to £8.9 billion. Exports and imports of total trade increased by £0.8 billion and £0.9 billion respectively. The main cause of the increases came from trade in services, with both exports and imports up by £0.5 billion since Quarter 1 2017.

In the same period, trade in goods also increased for both exports and imports by £0.2 billion and £0.3 billion respectively. Chemicals, unspecified goods and mechanical machinery were the main contributors to the increase in exports, whilst material manufactures (specifically non-ferrous metals and silver) and chemicals contributed the most to the increase in imports.

Exports to EU countries increased by 2.0% since Quarter 1 2017; this was mainly due to increased exports of chemicals and machinery and transport equipment shown in Figure 2.

Exports to non-EU countries fell by 1.4%, partially offsetting the growth seen in exports to the EU. This was mainly due to a decrease in exports of machinery and transport equipment (cars, aircraft, electrical machinery and mechanical machinery) and oil as shown in Figure 3.

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4. The UK’s total trade deficit (goods and services) widened by £2.0 billion between May and June 2017

The UK’s total trade deficit (goods and services) widened by £2.0 billion between May and June 2017 to £4.6 billion. This was mainly due to an increase in imports of both goods and services of £1.7 billion. Of this, imports of goods contributed £0.6 billion, with imports in machinery and transport equipment (specifically mechanical machinery, aircraft and road vehicles) from EU countries up by £0.5 billion.

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5. What has happened to UK trade since the EU referendum?

This trade publication forms the first full year period since the EU referendum result in June 2016. Therefore, there is now a full year of data to reflect on movements in UK trade since the EU referendum.

The total trade (goods and services) deficit in Quarter 1 (Jan to Mar) 2016 was £9.5 billion. In the months leading up to the EU referendum vote, the deficit narrowed to £7.8 billion in Quarter 2 (Apr to June) 2016. Following the EU referendum result in June 2016, the UK total trade deficit widened as a result of a significant increase in imports in comparison with exports between July and September 2016 – resulting in the trade deficit almost doubling to £14.8 billion in Quarter 3 (July to Sept) 2016. By Quarter 4 (Oct to Dec) 2016, the total deficit narrowed by almost £10 billion due to the value of exports increasing while the import value remained relatively constant during the period.

However, when analysing the trend in total trade excluding erratic commodities, as shown in Figure 5, the widening of the deficit in Quarter 3 2016 and narrowing of the deficit in Quarter 4 2016 are significantly reduced. This indicates that erratic commodities, such as aircraft, ships, precious metals and particularly trading in non-monetary gold had a large impact on the trade balance in the last 2 quarters of 2016.

In comparison with Quarter 1 and Quarter 2 of 2016, the total trade deficit over Quarter 1 and 2 of 2017 has been relatively stable.

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6. Export and import prices decrease in Quarter 2 2017 as the value of the pound increases

The 2016 depreciation of sterling has influenced export and import prices of UK goods and the latest data show a close long-run relationship between export and import prices (Figure 6). Between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017, goods export prices fell by 1.0%, the first quarter of negative growth since Quarter 4 (Oct to Dec) 2015. Import prices have also fallen in Quarter 2 2017 by 0.8%, but less than the 1.2% appreciation in the sterling effective exchange rate (ERI) over the same period.

Sterling was 8.7% lower than a year ago, with UK goods export and import prices rising by 8.2% and 7.8% respectively over the period Quarter 2 2016 to Quarter 2 2017. Recent ONS analysis found that increasing prices are expected as many transactions take place in foreign currencies.

Oil price movements also appear to be having an influence on import prices. Removing the effect of oil, import prices of goods increased by 0.1% in Quarter 2 2017 and export prices fell by 0.4% (a weaker fall in comparison with overall goods export prices). This coincides with the sterling price of crude oil decreasing by 9.3% in Quarter 2 2017. Given that the UK is a net importer of oil, oil prices provide downward pressure on overall import prices.

Goods import volumes increased slightly by 0.3% in Quarter 2 2017 (Figure 7) – which is slower than the 2.1% growth seen in Quarter 1 2017. Despite a considerably weaker sterling and higher import prices than in Quarter 2 2016, import volumes have increased by 4.8% in Quarter 2 2017 compared with the same period a year ago. This may be partially attributed to the increasing integration of the UK economy within global supply chains, which can limit the impact of rising import prices, as import substitution is difficult in the short-term.

Like oil, goods for which the UK is heavily reliant on imports are likely to be relatively more price inelastic – the ability to substitute imported goods for domestic alternatives depends on the availability of alternatives to meet demand. Import volume growth in Quarter 2 2017 was driven by imports of goods from non-EU countries (up 2.0%) compared with a 0.9% fall in imports of goods from EU countries.

Whilst the volume of goods exported fell in the month of June 2017, Figure 8 shows an increase in Quarter 2 2017 (up 1.4%), the third consecutive quarterly increase in export volumes, which has contributed to the narrowing of the trade deficit in Quarter 2 2017.

This recent growth can partially be attributed to an increase in exports of machinery and transport equipment. Despite a rise in sterling export prices in Quarter 2 2017 compared with Quarter 2 2016, export volumes have increased by 5.0% over the same period. However, even if export prices have risen in sterling terms there may be no change in prices when denominated in a foreign currency, which may be contributing to a more muted export response to the weaker sterling.

Recent analysis also highlighted the price inelastic nature of UK manufactured exports that are concentrated in high-value sectors are likely to be less sensitive to price changes and more sensitive to other demand factors. The quarterly increase in the volume of goods exported was driven largely by exports to EU countries, which increased by 2.7% in Quarter 2 2017 compared with a broadly flat change in export volumes to non-EU countries (up 0.3%). Excluding oil and erratic commodities, exports to the EU showed stronger export growth (up 3.3%).

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8. Quality and methodology

Trade is measured through both imports and exports of goods and/or services. Data are supplied by over 30 sources including several administrative sources, HM Revenue and Customs (HMRC) being the largest.

This monthly release contains tables showing the total value of trade in goods together with index numbers of volume and price. Figures are analysed by broad commodity group (values and indices) and according to geographical area (values only). In addition, the UK trade statistical bulletin also includes early monthly estimates of the value of trade in services.

Further qualitative data and information can be found in the attached datasets. This includes data on:

Detailed methodological notes are published in the UK Balance of Payments, The Pink Book 2016.

The UK trade methodology web pages have been developed to provide detailed information about the methods used to produce UK trade statistics.

The UK trade Quality and Methodology Information document contains important information on:

  • the strengths and limitations of the data and how it compares with related data

  • uses and users of the data

  • how the output was created

  • the quality of the output including the accuracy of the data

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