Globalisation beckons: UK finally exports more to China than Eire

 
Allister Heath

SLOWLY but surely, Britain is rebalancing its trade. In October, UK export volumes to EU member states were down by 5.5 per cent, compared to the 2010 average; exports to the rest of the world rose by 16.5 per cent, according to an analysis of the official data by Citigroup. This is beginning to have a big effect on trade flows. In 2008, the UK exported £19.1bn worth of goods to Ireland, much more than twice our exports to China (including Hong Kong), which were worth a pathetic £8.7bn. Over the last five years, however, exports to China (again, including Hong Kong) have soared 120 per cent, while sales of goods to Ireland have stagnated. The result: in the last three months, exports to China and Hong Kong combined were – for the first time ever – slightly (£7m) greater than exports to Ireland, the Citigroup research reveals.

This is a major milestone, especially given the fact that Ireland has long been the economy that is the most closely integrated with that of the UK, for historic reasons. As trade switches, so will Britain’s political and cultural ties: while European markets will always remain large, we are finally embracing genuine globalisation and trading more with the rest of the world, which of course is growing much more rapidly. While many of the big global banks in the City remain obsessively wedded to the status quo when it comes to the UK’s relationship with the EU, they are behind the curve. Our future is truly global, not merely European, and that means that the UK cannot afford to see some of its key industries hemmed in by punitive EU rules, or its competitiveness damaged by attempts at imposing excessive costs on UK firms.

It will obviously be vital to preserve and enhance trade links between the UK and the rest of the EU, especially in services (which are often not covered by global trade rules) but the new jobs and the growth over the next few decades will come from trading with Asia, Latin America and Africa.

STOCK MARKET PAYS OFF
The UK stock markets have done poorly in recent weeks. But over a longer time period their performance has been very strong. Take the past five years, a period during which many investors actually sold their shares, terrified at the potential fall-out from the recession and financial crisis. The FTSE 250 has delivered a capital return of 153.8 per cent and a total return of 192.1 per cent. The FTSE 100, where all of the attention tends to be, has delivered a capital return of 55.1 per cent and a total return of 86.6 per cent. Nice work if you can get it ­– but there are three lessons. First, timing is key. If you pick a rebound, you can do very well; if you invest at peak, you can lose a fortune or see your wealth stagnate. So beware the perma-bears as much as the perma-bulls and stick with dispassionate realism. Second, there is more to equity returns than mere capital appreciation; the difference between the two becomes huge over time. Third, don’t forget smaller firms – they are riskier, but can deliver higher returns, as the FTSE 250’s performance has shown.

2014 WILL BE AN EVEN BETTER YEAR
Remember this time last year? The world was full of gloom, forecasters were downgrading their predictions for the UK economy and it looked to almost everybody as if 2013 would be anther dire year.

Yet the reverse turned out to be the case: the economy finally started to bounce back and most economists now expect the UK economy to grow by at least 2.4 per cent next year. The end result could be even stronger, especially if real wages finally start to go up again. Sure, there are lots of imbalances, house prices are out of control and problems are rife, but at least the outlook for the year ahead is the most positive it has been for seven or eight years. And that, for once, is genuinely good news.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath

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