The UK trails its European peers in exporting to emerging markets. Just 20% of UK goods exports go to emerging markets, compared to around 27% for the big European countries. Increasing such exports is a key step towards reducing the UK’s chronic trade deficit and would likely help improve economic growth. In addition, such a move would help to diversify the economy away from being too concentrated in financial and business services, making it more resilient to downturns in those sectors. There are several reasons the UK has lagged behind. Emerging markets tend to have lower incomes and are therefore more likely to import goods rather than services. The UK has a competitive advantage in services rather than goods, and is one of the top exporters of financial, insurance, transportation and travel services (mainly tourism) globally.The UK’s competitive advantage in manufactured goods is in pharmaceutical products and some high-value-added, knowledge-intensive engineering products such as aircraft engines. The UK’s motor-vehicle manufacturing industry has increased its competitiveness dramatically in the past years, but similarly is skewed towards production of above-average-quality cars. Before an EM country reaches middle-income status, it will most likely have a high demand for goods such as household appliances, cheap cars and construction equipment. The UK has steadily raised its exports to Greater China, the Middle East and North Africa. But exports to other fast-growing emerging markets are declining in real terms, which means that the UK is losing market share to other countries.
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