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Hopes of a strong, export-led recovery in the UK were dashed today after the trade deficit unexpectedly swelled to its widest level in almost a year.
Official figures showed the goods trade gap increased from £6.8 billion in November to £7.3 billion in December — the worst since January 2009 and more than the £6.3 billion forecast in the City.
The Bank of England and the Treasury are counting on the weakness of the pound to aid exports and drive recovery in the UK while domestic demand remains weak. But while imports rose 5.2 per cent in December, exports increased just 4.5 per cent.
Vicky Redwood of Capital Economics said: “Far from benefiting from the global recovery and lower pound, the UK trade figures got even worse in December.
“It remains hard to see how this economic recovery can continue to gain momentum.”
Shocking figures from the British Retail Consortium also showed shopkeepers endured their worst January for 15 years last month.
Howard Archer of IHS Global Insight said: “The latest data are disappointing for UK growth prospects with the trade deficit widening in December and retail sales faltering markedly in January. This does little for nerves over the strength and sustainability of the recovery.”
Officials said total exports fell 9.5 per cent in 2009 while imports dropped 10.3 per cent as the global recession hammered trade.
The UK trade gap narrowed by £11.5 billion to £81.9 billion after hitting a record £93.4 billion in 2008.Exports to Britain's five main trade partners — the US, Germany, The Netherlands, France and Ireland — all fell.
Imports from China were up as it overtook The Netherlands and France to become the UK's third-biggest supplier of goods behind Germany and the US.
David Kern of the British Chambers of Commerce said: “Given the favourable international environment for British exporters, with a competitive sterling exchange rate and global growth edging up, our overall trading performance is not strong enough.
“The Government should back our exporters more forcefully — as many of our competitors are doing — and adopt measures to ensure adequate trade finance is available.”
Reader views (8)
Of course the BoE and the Government are counting on the reduced value of Sterling - its called debauching the currency and is the resort of the desperate.
- James Elliott, Eastbourne, UK, 09/02/2010 18:33
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The internationally competitive manufacturing element of this country which normally does not include Weapons and perishables struggles against establishment bias.
It is often,noisy,smelly, employs moving parts and has sharp edges. Therefore is hated by Health and Safety and pursued by ambulance- chasing lawyers.
Prescotts brownfield housing policies have reduced the availability of economical factories whilst planners and agencies build factories that all look like car showrooms
at high rents.
Every rise in the minimum wage causes differential arguments across the workforce as the pecking order is restored. Unions love rises in the minimum wage.
Red-tape uses millions of man hours.
For starters try wading through that to compete.
- Alan, Llandrindod Wells Wales, 09/02/2010 16:04
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There are different economic issues reported today which indicate that there is no current possibility of a sustained economic recovery. The report here illustrates that the government's free trade policy is not working for despite the low levels of the pound we cannot compete with goods coming from China and India. If our prices become lower because of the pound they will just reduce their prices to maintain market share. Our government like Obama must place some restrictions on imports either by introducing levies and tariffs or stopping the import of certain essentials altogether. Protectionist it may be but it is absolutely necessary.The other report today relates to the drop in retail sales which were the lowest in January since records began. How can people continue to spend in the shops when the Manufacturing and Service industries continue to decline and UK jobs are outsourced overseas. If I was a bookmaker I would be offering very short odds on the prospect of a double dip recession.
- Robin Brittain, Wolverhampton UK, 09/02/2010 15:26
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To Marianne of SW France. One day you might say something sensible, but I am not holding my breath.
Having an overvalued currency, as the UK has done for a number of years, is not a sign of strength; it is a sign of something fundamentally wrong, not only with the UK financial markets - such as money flowing in to fund excessive leveraging by consumers and banks - but of wild flows of "hot money" wreaking havoc throughout the world's financial markets. It is also highly damaging to the long term health of an economy.
The pound has gyrated spectacularly, along with the dollar and the euro, over the last decade, even longer with the pound/dollar rate, and it is hard to get a sense of its true value against the other major currencies. Nonetheless, high long-term interest rates in the UK (and they have been higher here over a sustained period compared with Europe and the USA) to control inflation has correspondingly resulted in a long-term overvaluation of the pound, which in turn also did help contain inflation.
But the problem with this strategy is that it damages exporters and remember that manufacturing still contitutes more than 50% of our exports.
The economy needs to be rebalanced - as all major parties and commentators acknowledge. The BOE has explicitly stated that reduction in the value of sterling is a necessary part of this.
- William, London, 09/02/2010 15:01
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This is just a sign of the last rush of consumer goods and cars coming in before the expiry of lower VAT and the scrappage incentive. We will not be able to AFFORD to buy any more imports this year, even if we want to.
Exports will accelerate even from the current 4.5% growth as the rest of the world recovers, while import growth will be forced down by our parlous debt situation.
- Robert C, London UK, 09/02/2010 14:59
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House prices, and warehousing for imported goods-that about sums up the UK economy. What the so-called experts haven't grasped is that now Asia / China are economic giants, the UK needs to return to its core qualities of innovation, design, and, hopefully, manufacture, so that export earnings can at least go some way to preventing an ever increasing trade gap, and we can somehow preserve what quality of life is left. At the moment, it seems that economists and politicians ain't got a clue and continue to think that house prices and warehouses will sustain us.
- Jon Kent, Hertford. UK, 09/02/2010 13:36
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"The Bank of England and the Treasury are counting on the weakness of the pound ..." You mean to say it's NOT a horrific error of financial mismanagement that means that sterling has lost 30% value of its' value overseas over the last 2-3 years?
- Marianne, SW France/London, 09/02/2010 13:26
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That's all right - as Lucy Tobin said last month, as long as house prices are still going up we have strong hopes of an economic recovery!
- Dave Markham, London, UK, 09/02/2010 12:42
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