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Weak trade figures to drag on UK economic growth: analysis

Xinhua, December 11, 2015 Adjust font size:

Figures out Thursday show a marked weakening in the UK trade deficit, continuing a run of poor statistics.

The overall trade deficit widened to 4.1 billion pounds (6.23 billion U.S. dollars) in October from 1.1 billion pounds in September, against the consensus expectation had been a gap of 1.8 billion.

This month-on-month widening of 3 billion pounds was the result of an increase in the goods trade deficit which made up the lion's share of the deficit, at 2.8 billion pounds.

Both the goods trade deficit and the trade deficit itself have widened year on year for each month of 2015. The continued weakness of the eurozone, which is Britain's largest export market, taking more than half of the country's exports, and the strength of sterling against most currencies lie behind this poor performance.

It might have been expected that the large fall in oil prices (Brent crude has declined from just over 110 U.S. dollars a barrel in June 2014 to 39.6 U.S. dollars a barrel on Thursday) would benefit the balance of trade figures as Britain, despite being an oil producer, is a net oil importer. But imports grew by 3.1 percent over a rolling quarter, an indication that Britons are using the boon of lower oil prices to buy more.

Such poor figures are a continued indication of the weakness of trade, and this has had and will continue to have a negative effect on economic growth, which is otherwise buoyant at 2.3 percent growth (year-on-year growth, to the end of Q3 this year).

Samuel Tombs, chief UK economist at the London-based economics research firm Pantheon Macroeconomics, said that the trade figures showed "underlying deterioration made worse by import volatility".

Tombs said that the October figures reflected a surge in imports. In addition exports fell by 2.7 percent month on month; Britons are using their growing wage packets (annual wage growth in the three months to the end of September was 3 percent, while annual inflation in October was -0.1 percent) to buy goods, but export firms are finding it hard to increase sales in the eurozone, where GDP growth is still struggling, at 0.3 percent quarterly increase in Q3.

And exporters are not optimistic about future prospects.

"Surveys of export orders point to further declines ahead. With the real effective exchange rate nearly back to its pre-recession peak, net trade is likely to slow the economic recovery further over the coming quarters," said Tombs.

For British manufacturers, if not for the British economy as a whole, it is shaping up to be anything but a merry Christmas. (1 pound = 1.52 U.S. dollars) Endit