Strong pound pushes trade deficit wider as industrial output grows 0.5pc

 
Emma Haslett
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Production grew 0.5 per cent in July (Source: Getty)

The impact of the strong pound continued to be felt in July by businesses with fingers in pies abroad, figures by the Office for National Statistics published this morning showed, with the UK's trade deficit widening to £3.3bn, up from £2.5bn the month before, despite the fact imports to the UK rose.

The deficit on trade in goods widened to £10.2bn during the month, its widest since April 2012, even though imports jumped £500m. That was partially offset by the services sector, though, whose surplus hit £6.8bn.

Meanwhile, figures from the UK's industrial sector looked rather more encouraging, with a 0.5 per cent rise in output between June and July, the best month-on-month rise since February. The figure includes manufacturing, which grew 2.2 per cent year-on-year, and energy output, which grew 3.4 per cent.

Howard Archer, chief economist at IHS Global Insight, pointed out that exporters "will at least be relieved to see sterling currently falling back markedly (although they may not be so happy that this is significantly influenced by the increased probability of the Scots voting for independence)".

He added that although the production data was good news, it wasn't as much as hoped.

The relatively recent modest rises in manufacturing output add to signs that the sector has lost some momentum from robust levels at the start of this year. This is disappointing for hopes that UK growth can be broad based on a sustained basis going forward and less dependent on the services sector. Of course, given its size, the services sector will always be the key growth driver. Latest manufacturing survey evidence from the CBI and the purchasing managers are somewhat mixed and overall reinforce the view that there has been some loss of momentum in manufacturing activity.

The pound experienced its largest single-day fall in a year yesterday, dropping 1.4 per cent on worries about the Scottish referendum.

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