Services account for a record share of Britain’s exports – but they are increasingly concentrated in London

Services such as ICT, education, culture and finance accounted for a record share of Britain’s exports in late 2023 – highlighting their growing economic importance, despite politicians’ continued focus on goods. But this success is far too focused on the capital, which now accounts for almost half of all UK services exports, according to new research published today (Tuesday) by the Resolution Foundation.

The research examines the growth of services exports in recent decades, and which parts of the country have contributed most to that growth.

Services exports are a growing part of global trade, and are forecast to rise from 25 per cent of total trade in 2020 to 28 per cent by 2035. As the second biggest exporter of services in the world, Britain is well-placed to capitalise on this economic tailwind in the decade ahead.

Services industries already account for more than two-thirds of British exports by value added and services exports have almost doubled as a share of total exports over the past 25 years – from 30 per cent in 1997 to 56 per cent in Q3 2023. Over the same period, services imports have also grown from 23 to 37 per cent of total imports.

However, Britain’s major cities have failed to capitalise on this, with London capturing the vast majority of the growth of services exports.

Between 2016 and 2021, London’s services exports have grown by 47 per cent to reach £152.2 billion. In contrast, exports from the UK’s second and fourth largest services-exporting cities – Greater Manchester and Birmingham – have grown by just 11 per cent and 3 per cent respectively.  As a result, London’s share of all UK services exports has grown from 38 to 46 per cent.

Glasgow – the UK’s third biggest services-exporting city – is the only other major city in Britain to see its share of UK services exports grow (from 2.4 to 2.6 per cent) thanks to services export growth of 34 per cent since 2016.

The Foundation says that the London-centric nature of Britain’s services exports success is far from inevitable, and must be addressed. It notes that in France – which has a similar services-based economy to the UK – the services export share in the major cities of Bordeaux and Lille has grown faster than in Paris, leaving Lille with a higher services export share than Paris in 2018.

If Britain’s major cities are to boost their exports performance, the Foundation says that policy makers must understand that services exports are far more broad-based than banking, and need to be far more geographically-spread than they are today.

First, looking at London’s recent success, the biggest export growth was seen in ICT (up 15 per cent between 2016 and 2021), and professional services (up 12 per cent), rather than banking (up 8 per cent).

A broad suite of tradeable services – from ICT and education, to cultural exports, marketing, accountancy, legal and professional services – should be at the heart of a renewed economic strategy for Britain, says the briefing, not least as many of the jobs in these sectors are relatively high-paid.

Second, the share of tradable services in local economies has grown between 1998 and 2021 across Britain’s 12 core cities, with the share of tradable services in the Greater Manchester and Edinburgh economies up 6.3 and 3.8 percentage points respectively. This shows that major cities have the capacity to significantly boost their services exports, say the authors.

However, turning Britain’s major cities’ economic potential into economic reality requires huge changes to their economies, as the Foundation’s recent book Ending Stagnation set out. This includes vastly more public investment in public transport and housing, and a major expansion of city centres to accommodate more firms and high-skilled workers.

Emily Fry, Economist at the Resolution Foundation, said:

“Global trade growth is services trade growth. And services exports are one of Britain’s secret economic success stories. Sadly, major cities outside London have failed to share in this growth, and the capital now accounts for almost half of all Britain’s services exports.

“Britain needs to build up, rather than talk down, services as a route to future economic prosperity. Tradable services aren’t just about banking, and should not be something that just happens in the capital.

“We have a wide range of strengths in services – from world class universities, to accountants and entertainment industries – and getting more of our major cities to sell this to the world would boost both local living standards and national economic growth.”