| Year | Quarter | Exports (£billion) | Sterling Exchange Rate Index (Base: 2019 Q1 = 100) |
|---|---|---|---|
| 2019 | Q1 | 150 | 100 |
| 2019 | Q3 | 153 | 101 |
| 2020 | Q1 | 140 | 98 |
| 2020 | Q3 | 125 | 95 |
| 2021 | Q1 | 130 | 94 |
| 2021 | Q3 | 138 | 97 |
| 2022 | Q1 | 142 | 92 |
| 2022 | Q3 | 148 | 89 |
| 2023 | Q1 | 152 | 87 digest |
The UK's trade balance experienced significant shifts following the economic shocks of 2020. As global markets reopened, sterling depreciated steadily, falling from an index of 100 in early 2019 to 87 by the first quarter of 2023. Under normal economic conditions, a weaker pound should make UK exports more price-competitive abroad, boosting export volumes.
However, domestic structural issues have limited these gains. UK labour productivity growth has remained weak compared to key trading partners, elevating the unit labour costs of UK exporters. Additionally, because UK manufacturing relies heavily on imported raw components and energy, the depreciation of sterling has inflated production costs. While nominal export values appear to have recovered to £152 billion by Q1 2023, much of this increase reflects rising prices rather than a substantial expansion in the volume of goods shipped abroad.
Recent monthly trade figures have heightened concerns over external trade's capacity to anchor UK economic growth. While the service sector—particularly financial, professional, and digital services—continues to run a structural trade surplus, the persistent and widening deficit in goods trade drags down overall net exports. In late 2022, the trade-in-goods deficit widened further, driven by high global prices for food, fuel, and intermediate manufactured imports.
Extract F (lines 11–12) states that 'recent weak export volumes cast doubt over the ability of net trade to secure a sustained recovery in the UK economy'. With domestic households facing high inflation and interest rate hikes, domestic consumption is expected to stagnate. The government and the central bank are increasingly hoping that export-led growth can make up for this shortfall in domestic demand, but global supply bottlenecks and weak productivity growth continue to challenge exporters.
Using the data and your economic knowledge, evaluate the extent to which export-led growth can be relied upon to secure a sustained recovery in the UK economy.
