What are some reasons that make the UK’s trade in services a surplus?

A quick look at the historical background of the UK indicates that capital accumulation started during the wars of conquest and colonization with maritime trade having a significant impact on cargo insurance and financial services. Soon enough, London had become the financial center of the world and has held the tradition into modern days but now with serious competition looming in the near future as a result of Brexit.

According to the Office for National Statistics’ (ONS) Pink Book, details the UK’s balance of payments, showing which countries the UK traded within 2016 and it reports a deficit in goods but a surplus in services

The importance of UK financial services trade with the EU

London is regarded as the world’s leading financial center, but the uncertainty caused by the UK’s recent decision to leave the EU could have major implications on whether it can maintain its competitive position in financial services. Major multinationals, such as Prudential Insurance, have begun to deliberate about moving operations to other centers in Europe in order to maintain access to the EU’s Single Market. A Research team here in London has been looking at the UK’s trade with EU markets to assess how Brexit will disrupt financial services.

In terms of export volume, the UK exports more goods than it does services. Germany is the UK’s largest trade partner for goods. Other major goods exporters to the UK are the Netherlands and France. ONS states that approximately 44% of the UK’s total exports both in goods and services went to the EU in 2014. However, the UK operates a significant trade deficit with the EU in terms of goods value meaning that the UK imports more goods from the EU than it sells. By contrast, the UK has a surplus in its services trade with the EU. Total services exports to the EU countries where Germany, France and the Netherlands as the primary markets for UK services exports.

Financial services (FS) and insurance make up the largest proportion of the UK’s services trade, accounting for 26% of services exports to the EU. The UK also has a number of important trading partners globally. The US imports insurance services from the UK, nearly the same as the total amount of financial services exports to the EU. Other major recipients of UK FS and insurance exports include Japan and Australia.

Taiwan and Indian markets also imported large sums of FS in 2014. Even though, there was a general decline in FS and insurance exports from the UK in 2014, economies such as South Africa, Singapore, Hong Kong and Saudi Arabia have remained major trading partners of financial services.