It’s a tough economic backdrop we are facing, and the cost of living crisis is already very real for so many households in the UK. The CBI growth forecast has been downgraded to 3.7% this year and 1% next year, reflecting a weak outlook for household spending. With high energy prices, disruption to global supply chains as we emerge from the pandemic and the devastating conflict in Ukraine, it can feel like we are buffeted by economic headwinds beyond our control. But there are things we can do to improve our quality of life and ensuring sustainable growth in the UK. In fact, our analysis shows business investment powered by the super deduction this year alongside government investment is what is keeping our economy growing. We need to have a successor to the superdeduction to keep business investment flowing next year and we also have to do better on our export performance. Raising our productivity growth through higher investment in renewable energy, in skills and in innovation is the only sustainable route to higher standards of living.
Better export performance is a key driver of innovation and vice versa creating a virtuous circle of export performance. It was great to have the chance to set out how the UK can make the most of this opportunity at the Global Trade Review’s UK conference last week. By the end of next year, our exports are expected to remain 10% below their pre-pandemic levels. Yet the UK has so much potential; we are the world’s second largest exporter of services and as this sector recovers from the pandemic, we need to tap into the innovation in how we deliver services across borders to make the most of it.
Almost half of our exports are in services – from our creative industries to architectural design, to higher education, to sustainable cities, to pensions advice, the UK is world leading across so many services. And even traditional areas of manufacturing are now more about selling the future of mobility as a service and connected devices that rely on software engineering and consulting services across borders. In fact, one third of our goods trade have services embedded within them. Yet the pandemic has seen a revolution in digital technology and how we can deliver services across borders. That’s why the CBI has launched the Trade in Services Council (TISC) to bang the drum for this under-appreciated and dynamic sector.
The UK has a strong international brand, it is a great place to do business, home to world-class universities and innovative start-ups. Yet only 0.3% of UK exporters export 5 different types of service compared with 26% of US firms. That shows how much potential there is.
First, on markets – and that starts with the EU. We must find a solution and a way through to build on the NI Protocol. Then we need to continue to improve access to European markets and facilitate the movement of business travelers and data across borders. Beyond the EU – the US is our most important single market and the world leader in trade in services, so reaching recognition of professional qualifications for our lawyers, engineers and many more at state level can unlock potential. The growing middle class in China is where we will see much of the demand for our services, and India is a massive opportunity if the trade deal we sign there is truly comprehensive.
Secondly, in sectors. With green goods and services being developed at pace, there’s exciting potential for the UK to lead the way and export our knowledge and expertise worldwide. Sustainability advice, green finance, design of cities, and energy from waste are just some examples where the UK can be a global leader.
Finally we need to get the environment right in the UK to ensure we are producing the best services to export around the world and that builds on the drivers of productivity - people, capital and ideas as the Chancellor set out in March in his Mais lecture.
It’s about people. TheCityUK has recently highlighted the importance of0 having access to the world’s best talent for financial and professional services to thrive. For this to take off, we need to have a quicker and more efficient way of allowing short-term business travel. And we need to embed mutual recognition of professional qualifications to facilitate trade in services across borders as the Royal Institute of British Architects argues.
It’s also about capital. The Creative Industries Federation puts the ability to move people, equipment and materials as key for the continued success and growth of services exports – that means investment in infrastructure and transport as well as mobility. TechUK estimate that 67% of service exports worth £190 billion are being digitally delivered. That means ensuring we have superfast broadband around the UK and digital provisions included in our trade deals so we can sell our best innovations around the world.
And it’s about ideas. 10% of total UK services exports can be attributed to the creative industries. We need to foster and support this. And part of that is having the right rules and regulations in burgeoning sectors as well as strong IP provisions.
The UK punches below its weight in exports, but our strengths in services and fast growth in demand for our expertise worldwide offers the perfect platform to find new growth for our economy. Let’s seize this moment to put ourselves back on track.