Investment in innovation and technological change could drive a step change in trade and an acceleration of trade growth in a post-Brexit Britain, in contrast to the impact expected by the UK’s departure from the European Union, according to new KPMG UK research.
Over time, the UK is likely to become more open despite the influence of Brexit. In its central technology scenario, termed technology convergence, the analysis found UK trade with the rest of the world could increase to £1.8trn ($2.3trn) by 2030 and to more than triple to £4trn ($5.1trn) by 2050, from its 2018 volume of £1.2trn ($1.5trn). Under the same scenario that also captures the impact of a no-deal Brexit, UK trade could recover to £1.3trn ($1.7trn) by 2030, following an initial decline and then rise further to £2.8trn ($3.6trn) by 2050.
The premise of this scenario is that technology will help to lower mobility costs, 3D printing will be in widespread use for industrial and high-end consumer goods and there will be a potential for greater and increasing share of services trade (particularly important for services-focused economies such as the UK).
Yael Selfin, Chief Economist at KPMG UK, said: “While Brexit has the potential to upset many of the existing trade links the UK has; technology offers a way of generating growth in a new environment. Our research’s central scenario highlights if a Brexit deal isn’t reached, a no-deal could have an adverse impact on the UK trade volumes over the next decade.
“Some of this can be mitigated by capitalising on the rapid growth of Asia Pacific, which is fast-changing the balance of economic power in the global economy. Companies need to keep abreast of consumers in these countries and how these markets can offer opportunities for growth.”
The analysis also looks at two other alternative scenarios, centred towards specific technology mixes. The more optimistic scenario, high connectivity, envisages advances in communication technologies, such as the internet of things, which underpin the development of more complex and far-reaching global supply chain, will dominate change. This would enable the UK’s overall trade to increase to £2.1trn ($2.7trn) by 2030 and to £5.4trn ($6.9trn) by 2050. In terms of openness as a proportion of GDP, this would put the UK in 2050 on a par with the Netherlands in the present day, as the ratio of trade to GDP would increase to 146% by 2050.
At the other end of the scale, a robotics and reshoring scenario, anticipates that developments in artificial intelligence and machine learning, as well as advances in 3D printing, will be the dominant drivers of change. The research shows that this could mean UK trade increases more marginally from its 2018 level, to £1.6trn ($2trn) by 2030 and £2.5trn ($3.2trn) by 2050. UK trade would continue to grow, despite the less accommodating technology developments.
Selfin said: “New technologies are all around us and it’s only a matter of time until we start seeing the effects of industry 4.0 in economic data. They can help address other pressing issues facing the UK economy: the weak performance of productivity and the inequality of opportunity. In the same way a rising tide lifts all boats, a healthier pace of economic growth will go a long way to promote prosperity throughout the UK, along with active government policies to support some of the short-term casualties.”
