UK INTERNATIONAL COMPETITIVENESS

UK International Competitiveness

UK international Competitiveness

Competitiveness is the ability of a nation to compete successfully internationally and sustain improvements in real output and wealth. There is no unique measure of competitiveness. We can use tangible measures such as unit labour costs and long-run average growth of real GDP and qualitative indicators of the kind to be found in the IMD's Competitiveness League Table.

The chart above shows relative unit labour costs for the UK against our major trading competitors. A rise in the index signifies a worsening of Britain's competitive position. Clearly in the last few years we have see a sharp rise in relative unit labour costs. (Boltho 2006 pp.34)

The main explanation for this is the sustained appreciation in the value of the exchange rate against other currencies. This has caused problems for exporters and domestic businesses who face severe competition from imported goods and services. Another reason is the relatively slow growth of manufacturing productivity - raising questions about why certain British industrial sectors lag behind in productivity against their major competitors. (Boltho 2006 pp.34)

The balance of payments is a record of all the financial dealings of the UK with the rest of the world. It can be split into two components:

The current account

The capital account

Our trading performance with other countries has a big effect on prospects for the British economy. Over recent years we have tended to import more goods and services than we have exported. This is shown in the chart below which tracks the quarterly value of exports and imports since the mid 1980s. (Best 2008 pp.45-53)

The Current Account

The current account is split into two sections itself:

Visible trade

Invisible trade

Trade in Goods (VISIBLE TRADE)

Trade in goods includes:

Manufactured goods

Semi-finished

Components

Energy products

Raw materials

Consumer and capital goods The table overleaf shows the annual deficit in UK trade in goods with other countries since 1995

£ million

1995

1996

1997

1998

Food beverage and tobacco

-4143

-5497

-5120

-6027

Basic Materials

-3507

-3757

-3527

-3110

Oil

4331

4823

4549

3059

Other Fuels

-542

-516

-371

-423

Semi-minerals

-1763

-1482

-915

-1776

Finished manufacturers

-6311

-6846

-6709

-12568

Unspecified goods

211

189

183

80

Total Trade balance

-11724

-13086

-11910

-20765

The economy has run a trade deficit since 1983 with the gap widening considerably because of the excessive economic growth in the mid-late 1980s. The deficit shrunk in the early 1990s recession and during 3-4 years of exchange rate weakness between 1993-96. However the trade gap has widened again in 1998-99. This is due to the slowdown in export volumes caused by recession in other leading economies and the lagged effects of a sustained appreciation in the exchange rate over the last three years.

Trade in Services (INVISABLE TRADE)

Trade in services includes:

Financial services, e.g., banking and insurance

Transport services, e.g., shipping and air travel

Tourism

Transfers resulting from the loan of factors of production abroad, e.g., interest received on a loan of capital to an American firm and a civil engineer working in Brazil on a construction project

The long-term growth and development of service sector industries is reflected in an improving trade balance for Britain with the rest of the world. This is shown in the chart ...