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A portrait of the UK’s global supply chain exposure
Bank of England
2024.10.04
Global supply chains (GSCs) are an important feature of modern trade. They have brought major benefits, including increased productivity, income, and living standards. But their risks have become more prominent in recent years as major global shocks, coupled with supply chain complexity, have led to disruption, particularly during the pandemic and its aftermath. This is especially relevant for the UK, a small open economy which is highly integrated into global trade systems and hence GSCs.

In a world of GSCs, trade is vulnerable to disruption in all the countries and sectors that play a part in making a product. We therefore need measures that capture hidden (ie indirect) exposures. Standard trade measures have typically focused on direct trade only, and classic supply chain measures have isolated the specific value that countries add to their shipments instead of considering how gross trade flows of inputs from many sources pass through them. Nowadays, trade shocks often affect the entire value of a shipment (ie the gross value of trade) ? rather than just the value-added to the product in the country where the disruption occurs.

To capture these features, this article uses measures of gross trade exposures that include hidden linkages ? where the word ‘hidden’ refers to the fact that these linkages are not directly observed in the data ? to show how UK trade could be affected by supply chain exposures to different countries (including itself). This portrait of UK GSC exposures examines: (i) domestic versus foreign dependencies, with the aim of uncovering whether there are pockets of GSC concentration that might pose risks; (ii) direct versus indirect exposures, with the aim of revealing the UK’s hidden exposure to supply chain risk; and (iii) manufacturing versus services GSC risk, which is particularly relevant for the UK as a services-oriented small open economy.