Globalisation and UK Trade

Abstract

Recent data on the UK balance of payments suggest that the deficit is deteriorating, and this may lead to downward pressure on the exchange rate. Of course some of the recent deterioration is due to temporary factors, such as the need for expensive gas imports and the inclusion of the estimated payment of insurance claims by Lloyd's of London due to Hurricane Katrina. However, there are some structural factors to look at. In this note we explore the effects of globalisation on UK trade and draw some conclusions for the UK economy. We first discuss European integration and its possible effects on trade, after which we look at changes in the world trading environment, both in terms of regulations and also in relation to technology. We then turn to estimating relationships for exports and imports. The level of exports and the degree of import penetration in the economy depend upon the level of world activity, the nature of the goods produced in the UK as compared to those demanded by consumers, the price competitiveness of UK products and the general trading environment facing the economy.

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