Why the UK’s trade deficit makes household bills so vulnerable to global shocks

The UK’s trade deficit of goods is the widest it has ever been. In 2025, the country spent £248.3 billion more on things than it sold to the rest of the world.

This is not just some abstract number, of interest only to markets and economists. The UK’s trade deficit has practical consequences which help to explain why global events show up so quickly in people’s food and energy bills.

Nor is this a new situation. While the UK runs a strong surplus in services such as finance and professional consulting, it consistently imports more goods than it exports.

On its own, that is not necessarily a problem. Many advanced economies run trade deficits of goods. The more important issue is what a country imports, and how essential those imports are to daily life.

For example, the UK relies heavily on imports for many things that households cannot easily live without, such as 40% of the food they consume.

It imports much of its energy too – and although the UK produces some domestic oil and gas, wholesale energy prices are strongly influenced by international markets.

Food and energy are not optional purchases. Households cannot simply stop eating or heating their homes when prices rise. Economists describe these goods as “inelastic”, meaning that demand does not tend to fall even when the price increases.

And this creates a direct link between global volatility and household vulnerability. When global supply chains are disrupted, whether it’s because of geopolitical tensions, extreme weather or commodity price spikes, any country which is dependent on imported essentials (Germany, Italy and Japan are other examples) feels the impact quickly.

The Bank of England has highlighted how global energy and food price shocks played a major role in the recent surge in UK inflation. International adjustments feed quickly into domestic cost-of-living pressures.

Currency changes

The UK’s trade deficits also mean it needs plenty of foreign currency to pay for all of the things it imports. When financial markets become volatile, the pound can weaken, increasing the cost of these imported goods – which leads to rising inflation.

For an economy that depends heavily on imported food, fuel and manufactured goods, currency movements can amplify inflationary pressure. Households may not follow exchange rate fluctuations, but they do notice higher supermarket prices and energy bills.

Not everything is in deficit, though. The UK runs a significant surplus in services, particularly in finance.

But this creates a disconnect between the UK’s overall national economic performance and household experience. While the export of services supports national income and employment, it does not directly reduce the prices people pay for imported food or energy.

This is why everyday price vulnerability can remain high even when overall trade figures appear manageable.

Also, import-driven price shocks do not affect all households equally. Lower-income households spend a larger share of their income on essentials such as food and energy. When prices rise, they have less flexibility to absorb the increase. Higher-income households may cut back elsewhere, but lower-income households often cannot.

When import costs rise, the financial strain is therefore more intense for those people with the least. The same global shock can be manageable for some households but seriously disruptive for others.

Part of the reason for this general situation is that since the early 1990s, global trade policy has prioritised efficiency through trade liberalisation and manufacturing processes being spread across multiple countries.

Importing goods from the most competitive global suppliers reduced prices in stable periods. But efficiency often comes at the expense of resilience. When supply chains are disrupted, countries that rely heavily on imports for essential goods have fewer domestic buffers. Politicians may then struggle to stabilise prices because the source of volatility lies abroad.

Trade off

The result is something many households recognise. Events far away can rapidly translate into higher bills at home.

But the issue is not trade itself. International trade brings clear benefits, including lower prices, greater choice and access to global goods and services.

The question is whether the UK’s balance between efficiency and resilience leaves households overly exposed to volatility. Recent cost of living pressures have demonstrated how quickly global shocks can reach household budgets.

Trade policy is therefore not just about competitiveness or GDP growth. It is also about economic resilience – how well households are protected from forces beyond their control. But this does not mean reversing global trade or pursuing full self-sufficiency, which would be likely to increase costs.

Instead, the government should be working on the UK’s resilience through things like diversified supply chains and stronger strategic reserves. Clearer contingency planning for essential goods would reduce the UK’s vulnerability to global shocks.

While the UK’s trade deficit is often treated as an abstract macroeconomic statistic, for many households its consequences are felt in something far more tangible – grocery and energy bills.

Erhan Kilincarslan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.