The UK’s deficit on trade in goods widened to £10.1 billion in June, with exports down by 8.4 per cent and imports by 1.2 per cent.
The deficit was well in excess of that predicted by ‘experts’, and was the worst figure since the current run of trade stats started in 1997. Moreover, the trade gap for the second quarter (which gives a better picture of trade trends than volatile monthly figures) rose from £7.8 billion to £11.2 billion. In the three months to June, the overall value of exports fell by 2.7 per cent, while imports were largely stable.
The bad news came as a blow for a government which has been pinning hopes on exports helping to drag Britain out of recession. It also prompted calls for the government to provide more support for exporters struggling with falling demand overseas.
Yet there is one manufacturing industry that has bounced back after the 2008-2009 recession, that has helped ‘rebalance’ the economy, and that has exported its way out of trouble. But rather than ‘march of the makers’ think ‘drive of the makers’, as the industry concerned is the UK car industry.
Between 2009 and 2011, UK car output rose from 1.1 million to 1.45 million units, with over 80 per cent of cars produced in the UK being exported. Car exports are up by 10 per cent so far in 2012 and in the first quarter of this year the UK actually posted a quarterly trade surplus in cars for the first time since the mid-1970s, with the value of exports exceeding imports by £564 million.
And 2012 as a whole may well turn out to be first year in over a quarter of century in which the UK runs a trade surplus. In comparison, the UK ran a trade deficit on cars of £1 billion in 2011 and a whopping £7.5 billion in 2007.
In the past 18 months, multinational car firms have committed over £5.5 billion of investment to projects in the UK. The remarkable success is in stark contrast with what’s unfolding in the rest of the European industry, where the market is at a 15 year low.
A combination of weak demand and huge over-capacity has left much of the European owned industry in a state of crisis. Only the German firms of Volkswagen, BMW and Daimler are making serious money. Opel, Peugeot, Ford and Fiat are all bleeding red ink, with Renault just managing – for now – to break even. Some analysts expect a much-awaited grand restructuring of the European auto industry. Others sigh and expect it to just muddle on as usual as it has done for decades.
While all of the assembly operations in the UK contribute to exports, with some 70 per cent of exports to the Eurozone, it’s the premium sector in particular which been driving the recent rapid growth in exports. This is courtesy of a new middle class emerging in economies such as China keen to show off its recently earned wealth, and which has been doing it by driving Rolls-Royces, Bentleys and Range Rovers.
It’s a little known fact that the UK car industry is the second largest producer of premium cars in the world after Germany, and accounts for around a third of UK car output. But given the higher value of its cars, this premium sector accounts for a higher share of the value of exports.
If you’re still wondering exactly what constitutes this premium sector, think of high-value high-design content brands such as JLR, Rolls-Royce, Bentley and Aston Martin right through to MINI as a premium small car.
While the recent surge in output is still well below the most recent historical peak of just under two million cars at the end of the 1990s, it’s very much moving in the right direction, and what’s interesting is that the inflation-adjusted value of the average car produced in the UK has risen by some 30 per cent over the past 15 years, reflecting the shift up market.