The REAL economics of Brexit Britain part 1. Exports

[Branton Red]

Remember being told in 2016 that Brexit would seriously damage the UK's international trade competitiveness?

Have a look what's happened to the comparative value of UK exports since 2016 www.youtube.com/watch?v=I6e06bO4KnY

2016: UK was the world's 6th biggest exporter with exports valued at $783bn pa.

2022: UK was the world's 4th biggest exporter with exports valued at $963bn pa.

That's a growth in UK exports of 23.0%. Let's compare that growth to the EU's biggest exporters in the same period: -

- Germany export growth of 1.2%
- France exports value has fallen 22.1%
- Italy export growth of 20.8%
- Netherlands export growth of 16.0%

[BillyStubbsTears]

Branton.

Where have those numbers come from? That's not remotely what the OECD figure say.

https://data.oecd.org/trade/trade-in-goods-and-services.htm

2016 - 2022 exports in US$bn

UK: 837-927 +10.8%

France: 759-815 +7.4%
Germany: 1624-1803 +11.7%
Italy: 556-656 +18.0%
Netherlands: 643-768 +19.4%
EU27: 6600-8094 +22.6%

That paints a totally different picture. I wonder if you are repeating numbers that you want to be right, without checking them. Like you did on the inflation numbers recently.


And remember, our export sector got a massive boost from the huge devaluation in the £ that came about because of the Brexit vote.

[BillyStubbsTears]

Also, the  UK export figures reported by the OECD suddenly shot upwards in 2022.

In 2021, the export figures for UK were $843bn, only 0.7% higher than they were in 2016.

The 2016-21 shifts from other countries were:

Germany +8.1%
France +0.4%
Italy +7.7%
Netherlands +14.2%
EU27 14.6%

I wonder if some of the better UK numbers in 2022 are a facet of a backlog of orders that didn't get processed in 2021 due to the newly introduced regulations? We'll see where this goes over the next few years. But when you look at reliable numbers, the indications are that we are doing much worse than most of the EU, despite many of them being hit harder than us by Putin's energy war.

[Glyn_Wigley]

If you're talking REAL economics, have those figures been properly adjusted so that they are in REAL terms or not?

https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator

According to the Bank Of England, £100 in 2016 equates to £120.90 in 2022, a 20% drop in the intrinsic value of the pound. That means that if your figures aren't in real terms your 2016 starting figure needs to be £939.6bn pa to be a direct comparison.

That means an actual growth in real terms of £23.4bn pa. A growth of 2.5%. Over six years. ie 0.4% pa.

And that's before you take the drop in value of the pound against other currencies into consideration.

Now how does it compare to EU countries?

[Branton Red]

Billy

I'd suggest that the UK's exports shooting up in 2022 will be mainly due to Covid restrictions being lifted given a much higher % of our exports are of services than other countries. Comparisons between 2021 and 2016 are for the same reason therefore misleading.

Even your figures suggest UK export growth has outperformed France and have only marginally underperformed Germany.

Comparing the UK (or France or Germany) with the whole EU is misleading given many Eastern European countries are less developed and are economically growing much faster.

It is untrue to suggest the UK hasn't been as hard hit by Putin's energy war as much of the rest of the EU. The UK is heavily reliant on gas for power generation and home heating and so has been hit harder by the rise in wholesale gas costs than certainly most Western European countries.

I'm not claiming leaving the EU has boosted UK exports, far from it, just showing that it has hardly been the disaster we were warned it would be. Your figures do not disprove my point.

[Branton Red]

If you're talking REAL economics, have those figures been properly adjusted so that they are in REAL terms or not?

https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator

According to the Bank Of England, £100 in 2016 equates to £120.90 in 2022, a 20% drop in the intrinsic value of the pound. That means that if your figures aren't in real terms your 2016 starting figure needs to be £939.6bn pa to be a direct comparison.

That means an actual growth in real terms of £23.4bn pa. A growth of 2.5%. Over six years. ie 0.4% pa.

And that's before you take the drop in value of the pound against other currencies into consideration.

Now how does it compare to EU countries?

Hi Glynn

Yes the figure are at 2022 US$ prices

[BillyStubbsTears]

Branton.

Where are your figures from?

[Glyn_Wigley]

They have only converted the original figure by the current exchange rate, that doesn't mean the converted amount is in real terms at all.

The current USD/GBP exchange rate is 0.80

So converting both figures back into current GBP using that rate gives us:

2016 = £626.4bn pa
2022 = £770.4bn pa

Again, adjusting for UK inflation the starting figure should be £626.4bn pa + 20% amount of £125.28bn pa = £751.68bn pa

A growth in real terms of £18.72bn pa. Growth of 3% over six years, so 0.5% pa.

On top of that, the average USD/GBP exchange rate for 2016 was 0.7408 and the average rate for 2022 was 0.8115.

[BillyStubbsTears]

"I'd suggest that the UK's exports shooting up in 2022 will be mainly due to Covid restrictions being lifted given a much higher % of our exports are of services than other countries."

That doesn't make any sense by the way. Services in relation to the export market were far easier to export during COVID than goods. People stopped buying cars but they still needed to insure their cars.

I'm perfectly willing to accept that there was going to be a bounce back after the COVID restrictions were removed. But you need to make a stronger case than that for why this should have been more of an issue in the UK than in other countries.

As for the overall figures, your blithe attitude to the numbers is illuminating.

You post some unreferenced numbers that say our exports have grown at a rate higher than all the countries you compare it to.

In fact, the official numbers say our growth has been less than half what you say, and three of the other 4 countries have had significantly higher growth than you say.

And your response is that you're still right anyway.

And you don't refer to the elephant in the room of the effect of the huge Brexit devaluation of sterling on our exports.

The point is that, all other things being equal, our export sector should have been put on rocket boosters by a 30% devaluation of the pound in 2016. That had the direct effect of making our sales to pretty much every other country in the world 30% cheaper for the buyer. The fact that, at best, our exports have grown at a similar rate to the weakest growing EU exporters since 2016 screams out that there is some very serious underpinning problem in our economy.
 

[Branton Red]

Glynn

I think you're overcomplicating things

Euro100 in 2016 equates to Euro119.53 in 2022 www.in2013dollars.com/europe/inflation/2016?endYear=2022&amount=100. Not greatly different to the UK inflation number you worked out at £120.9

So in real terms yes the numbers are much less than the actual numbers I quoted but it makes little difference to the differentials.

[Glyn_Wigley]

Glynn

I think you're overcomplicating things

Euro100 in 2016 equates to Euro119.53 in 2022 www.in2013dollars.com/europe/inflation/2016?endYear=2022&amount=100. Not greatly different to the UK inflation number you worked out at £120.9

So in real terms yes the numbers are much less than the actual numbers I quoted but it makes little difference to the differentials.

OK I accept that, so now on to the next point, how has the Euro fared against the USD from 2016 to 2022?

[Branton Red]

Billy

You were comparing 2021 with 2022. 11.8million cars were sold in Europe in 2021; 11.3million cars were sold in Europe in 2022. www.best-selling-cars.com/international/2022-full-year-international-worldwide-car-sales/

Car insurance premiums are partly based on usage. Travel insurance on the amount of travelling being done; house insurance partly on how often you leave your house unoccupied.

We're comparing UK export growth to that in similar Western European countries which use the Euro.

The £ fell from around Euro1.30 to around Euro1.17 on the Brexit vote (where it is now and roughly has been since on average) - that's a drop of 10% not 30%.

On a more long term average basis (certainly since the '08 crash) the fall to Euro1.17 is even less pronounced than that. www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/gbp/GBP-to-EUR

Where do you get your 30% from? It would appear to be an unfounded exaggeration.

[Branton Red]

Glynn

I think you're overcomplicating things

Euro100 in 2016 equates to Euro119.53 in 2022 www.in2013dollars.com/europe/inflation/2016?endYear=2022&amount=100. Not greatly different to the UK inflation number you worked out at £120.9

So in real terms yes the numbers are much less than the actual numbers I quoted but it makes little difference to the differentials.

OK I accept that, so now on to the next point, how has the Euro fared against the USD from 2016 to 2022?

We can keep it simpler than that I think? The £ fell approx 10% against the Euro on the referendum vote (see my prior post). The vote was as near as damn it half way through the year so on 2016 UK numbers versus EU numbers we need to account for a 5% differential.

The UK still outperforms Germany and France on export growth but is now behind Italy and Netherlands - though only marginally.

So my point stands. There is little evidence for Brexit causing a serious downturn in UK comparative exports whichever figures you look at.

[danumdon]

Well, this one died a quick death.

After the quick pile in from usual sources it all seems to have gone very quite,

Amazing how it comes to a complete stop, as if there was nothing to gleaned from this in a certain direction?

Noticeable that this happens, often!

[Glyn_Wigley]

Well terribly sorry for not contributing for 24 hours. I really should ignore the effect the weather is having on me aa well as cancelling the medical appointments I had today and instead put more effort into realising what my priorities truly are.

[big fat yorkshire pudding]

Some good statistics though, quite interesting that they don't necessarily follow the narrative many would have you believe isn't it?

[Branton Red]

Some good statistics though, quite interesting that they don't necessarily follow the narrative many would have you believe isn't it?

For me these stats go to the very nub of the issue.

We were told the extra administrative costs on trading with the EU would greatly reduce the UK's competitiveness to such an extent that business' would close, there would be mass lay offs, higher unemployment, lower wage growth and economic growth would then lag behind other similar countries.

It was the very foundation stone of the Remain argument. These stats show any downward impact on UK trade to date of Brexit is nowhere near enough to cause such profound economic damage. The whole edifice of the 'Brexit is catastrophic' argument comes crashing down off the back of them.

[Branton Red]

Billy

We're comparing UK export growth to that in similar Western European countries which use the Euro.

The £ fell from around Euro1.30 to around Euro1.17 on the Brexit vote (where it is now and roughly has been since on average) - that's a drop of 10% not 30%.

On a more long term average basis (certainly since the '08 crash) the fall to Euro1.17 is even less pronounced than that. www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/gbp/GBP-to-EUR

Where do you get your 30% from? It would appear to be an unfounded exaggeration.

Billy - that's 4 days and no response. Time enough to call you out I think.

You regularly post and/or defend to the nth degree links to dubious or contrived stats or views which match your agenda. You have some gall to sanctimoniously lecture me on data referencing.

And having done so in the very next paragraph no less you quote an unreferenced statistic which is wildly inaccurate and I assume off the top off your head but which off course suits your argument.

I think hypocrisy is the word I'm looking for.

And please don't counter that you haven't seen my last post - I was on this thread 2 or 3 evenings ago and could see you were viewing it.

It's not difficult to find moralistic, vitriolic criticism from yourself towards public figures who, having (intentionally or not) uttered falsities and been exposed for doing so, have failed to correct the record on them.

On that basis allow me to downgrade my critique further to unrepentant hypocrisy and dishonesty.

[BillyStubbsTears]

Branton.

You haven't the first inkling what I've been dealing with personally or professionally this week. If you're aim in here is to feel good by winning arguments, silence from your interlocutor for a few days is a poor metric to go by. But fill your boots if you wish. While you're doing it, you might want to reflect on the fact that you never responded when I asked you in a recent thread where your (wrong) information on German inflation came from. In your own time.



But since you are so keen for a response, here we go.

1) Admitted, I got the wrong value on the fall of sterling. 30% was roughly  the fall from the announcement of the 2016 Referendum in late 2015 to the lowest point. Many economists have suggested that the fall starting then was due to the finance markets getting jittery about the outcome of the vote. But I shouldn't have used a figure without checking it. You're right on that.

So let's just go with your 10%. That is still a huge export advantage. It means, all other things being equal, it costs  buyers 90 cents to buy from you what it costs them 1 Euro to buy from a EU supplier. So, all other things being equal, you have a very significant export advantage. That has not filtered through in any way to the export figures, which suggests that there is an least as big a negative effect in play.

2) You chose to compare two points - 2016 and 2022. I make my living analysing data and I'm always interested in seeing the bigger picture. Specific points can obscure trends. So with that in mind, I've graphed up the figure below from OECD data. You could do it if you wished, instead of relying on a faceless YouTuber, with no references.

The trends are pretty clear. We have, generally, had the worst export performance since 2016 of all the countries you mention, with the exception of France. And we have had the worst recovery from the COVID hit of any country with the arguable exception of Germany (which of course has seen it's cars and white goods exports hammered by semi-conductor shortages.

Now, no-one sensible said Brexit (after a deal) was going to lead to UK economic performance falling off a cliff. The problem is going to be a long term grinding difficulty in not being able to export as freely to the EU as they can to one another. It'll be a long, slow deviation between our trend and theirs. I think you can just see it starting in that graph. You may have a different opinion. Let's have a look in another 2-3 years.

Finally, please be a bit less free with your use of words like "hypocrisy" and "dishonesty". If you don't want to sound like an unpleasant prick.

[Branton Red]

Billy

I'm baffled at how a data analysts with the data to hand could: -

a) Conclude Brexit caused a 30% fall in Sterling and continue to defend such an obviously massively exaggerated figure
b) Measure an exchange rate fall by the lowest point it hits rather than an over time average
c) Conclude that UK economic underperformance in 2020-22 is mainly due to Brexit when quite obviously the main reason is how comparatively worse hit by Covid the UK economy was.

If you're bringing the permanent exchange rate fall caused by Brexit into the equation when assessing the impact of export changes on economic growth - which it is quite reasonable to do so - then the data you're comparing is misleading.

Following a devaluation of the £ total UK exporters revenues should rise but their profits should rise by a higher %.

It is ultimately profit growth which matter to companies not revenue growth. It is profit growth which contributes to GDP growth not revenue growth.

The export data being compared represents the value of goods exported i.e. their sales price not the profit made on them.

Say BST Ltd exports widgets to France. Pre-Brexit they charged £1. The French customers paid E1.30. The widgets cost 90p to produce. After Brexit and the 10% devaluation: -

Scenario A: BST Ltd decided to continue selling widgets to France at £1. The French customers are now only paying E1.17 so their demand grows. Say by 11%. BST Ltd revenues go up 11% and their profits go up 11%.

Scenario B: BST Ltd takes advantage of the £ devaluation to increase their sales price to £1.11. The French customers are still paying E1.30 and therefore demand stays the same. BST Ltd is making 11% more revenue on each unit and 11% more revenue overall.

However instead of making 10p profit per unit BST Ltd is now making 21p profit per unit. Their profits have gone up not by 11% but by 110%

And that 110% increase in profits is real money not an accounting/paper profit. BST Ltd is contributing 11% more to the export value data but 110% more to GDP growth.

Based on revenue the OECD data shows UK exports have grown faster than the EU's second biggest economy and only marginally slower than it's biggest.

But the impact on exporters profits and GDP growth will be considerably higher than the 10.8% you quote and thereby considerably higher than any profit/GDP growth experienced by French or German exporters.

The comparative hit to UK export (revenue) growth of Brexit has to be considerably worse than that indicated by 2022 figures to cause either a short term or grindingly slow long term hit to comparative UK economic growth.