KPMG suggests new technology could triple UK trade by 2050
The proponents of Brexit have insisted for years now that Britain’s technology offering is the key to a thriving post-EU economy. According to new research, investing in innovation to this end could drive trade levels to triple in the next 30 years.
The technology industry faces a watershed moment in the coming months, amid the continued uncertainty surrounding Brexit. Despite everything, 2018 saw venture capital invest more in UK tech than Germany and France combined, while the Black Country is now hosting world leading research into 5G internet from Birmingham, Wolverhampton and Coventry. In this environment, CBI Director General Carolyn Fairbairn recently told business leaders that by seizing the agenda on this front the UK can help insulate its economy from coming headwinds.
To that end, the UK Government is keen to foster creativity, with a growing emphasis on future inventions ushering in incentives such as HMRC schemes, including Patent Box and the R&D tax credits regime. The bid to boost creativity seems to be paying dividends, with a huge haul of new patents in the UK, and the country’s technology sector having boomed to a value of more than £180 billion last year, while the number of new technology companies launched in the UK rose by 14% in 2018.
The explosive growth outpaced the sluggish UK economy as a whole, and will undoubtedly add to the emphasis placed on the tech sector in order to achieve a successful Brexit. Now, Big Four firm KPMG has added to the claims that technology could be the UK’s salvation, even as it flirts with a recession ahead of the final Brexit deadline in October. According to KPMG’s study, a scenario in which Britain focuses on the development of technology could see explosive growth in the next three decades.
High connectivity
A “high connectivity” scenario would see advances in communication technologies, such as the internet of things, which underpin the development of more complex and far-reaching global supply chains. For individual manufacturers, this offers a route towards greater specialisation and exploitation of economies of scale. Service sectors would benefit too, particularly from improving digital communications: services would increasingly become more tradable, closing the gap with goods trade.
The optimistic scenario, in which the UK would become more open in spite of Brexit, could enable the UK’s overall trade to increase to £2.1 trillion by 2030 and to triple to £5.4 trillion by 2050 from its 2018 volume of £1.2 trillion. However, this prediction significantly falls in the event of a No Deal Brexit. In that case, UK trade would suffer a major drop before it could ‘recover’ to £1.3 trillion by 2030, and then rise further to £2.8 trillion by 2050.
While the press has been keen to extoll the upbeat message of the report’s best case scenarios then, the fact of the matter is that it still suggests technology cannot insulate against the immediate economic turbulence, or decrease in quality of life, that a Hard Brexit would bring. At the same time, the top scenario is related to the optimal level of investment in technology being received – something which carries no guarantees. Were other less optimistic scenarios paired with No Deal, trade would see an even lower boost by 2050.
Yael Selfin, Chief Economist at KPMG, remarked, “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… New technologies are all around us and… 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.”
