Unit 2 Macro: UK Trade in Services

A revision blog on UK overseas trade in services

Trade in services includes:

• Banking, insurance and consultancy
• Other financial services including foreign exchange and derivatives trading
• Tourism industry
• Transport and shipping
• Education and health services
• Research and development
• Cultural arts

Britain has a strong trade base in services with over thirty per cent of total export earnings come from services. Indeed the success of our service sector industries has been one of the strong points in tour economic performance over the last twenty years.

Data from Timetric.

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United Kingdom from Timetric

The UK balance of trade in services has been in surplus for many years. In 1999 the UK became the second largest exporters of services in the world. Strong surpluses are especially common in financial and business services and hi-tech knowledge services. The UK is also a major net exporter of creative services such as film and television programmes, books, advertising and marketing services and architecture and design.

But the UK runs a deficit in international travel and transportation in part because of rising demand for overseas holidays as living standards have improved. Once again, rising incomes have caused a large rise in the demand for leisure and business travel and the recent strength of the exchange rate (until recently) and the rapid expansion of low cost airlines offering short haul overseas breaks has also played its part.

Britain has a comparative advantage in selling financial services to the rest of the world.

London is one of the three main financial centres in the world and has the largest share of trading in many international financial markets. For example, around one third of all of the currency dealing takes place in London’s trading platforms and many overseas banks have established themselves in London’s money and capital markets.

Numerous British financial businesses have world class status in their areas of expertise. Our UK based commercial banks, fund managers, securities dealers, futures and options traders, insurance companies and money market brokerage businesses are part of a complex network of financial and business services that represent a huge asset for the UK balance of payments accounts.