The UK’s relationship with the EU
In 2014, the European Union accounted for 54% of the total trade in goods and services of the United Kingdom. Germany is the biggest trading partner of the United Kingdom, both in the EU and overall. The UK’s total trade with Germany stood at $155.2 billion in 2014.
The UK’s relevance in the EU can be understood by the fact that among the top ten trading partners, eight belong to the EU. Its total trade with the EU stands at about $602.4 billion. The UK’s total trade with the EU grew by an average rate of ~4.6% from 2011–2014.
The UK’s top exports in goods include automobiles and petroleum products. Integrated oil and gas companies such as BP PLC (BP) and Royal Dutch Shell (RDS.B) are the competitors to US-based companies such as Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX). The iShares MSCI United Kingdom Index ETF (EWU) represents these companies based in the United Kingdom.
The above chart shows the total trade of the United Kingdom with the EU and its member countries in the last five years. It also shows that the trade relationship of the UK with the EU is increasing on a yearly basis.
Growing trade deficits with EU members
In 2014, the trade deficits of the United Kingdom with the EU members and the non-EU members totaled $113.6 billion and $79.4 billion, respectively. Since 2010, exports with the EU and the non-EU members grew by an average rate of 2.5% and 5.2%, respectively, on a yearly basis.
Imports with the EU and the non-EU members rose by an average rate of 6.1% and 1.5%, respectively, over the last five years. This illustrates that exports are slowing with the EU members as compared to non-EU members, which affects the balance of payment (or BoP) with the EU members.
The above chart shows the growing deficit of the United Kingdom with the EU and the non-EU members. Trade deficits measure the difference between exports and imports. The balance of payments shows the British economy’s transactions with the rest of the world.
In the final part of this series, we will analyze how the United Kingdom has positioned itself in the world economy.