UK posts mighty trade deficit in month of EU referendum

Jake Cordell
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Exports actually grew in June, but they couldn't keep up with rising import levels
Exports actually grew in June, but they couldn't keep up with rising import levels (Source: Getty)

The UK trade deficit ballooned to a huge £5.1bn in June, far ahead of expectations and raising more questions about how the UK's exporters and importers will fare after the referendum.

The figures, released this morning by the Office for National Statistics (ONS), also showed imports reached their highest ever level in a single month of £48.9bn. Exports rose by £1bn over the month, but were unable to keep up with demand for overseas goods, pushing the UK's notorious trade deficit even higher.

The headline deficit was more than twice the £2.5bn level economists had been pencilling and nearly double the £2.6bn recorded in the same month last year.

Markets had been expecting the data to disappoint and the pound had tumbled overnight, falling below $1.30 for the first time in four weeks. Sterling was relatively unmoved on the news, with the pound trading at $1.2987, down 0.4 per cent.

Read more: Sterling slips on Brexit Bank of England stimulus speculation

Figures released by the Bank of England as part of last week's Inflation Report showed Threadneedle Street expects imports will rise slower than had the UK voted to stay inside the EU on back of the much-weakened pound. Conversely, exports will perform slightly better though it will not be enough to eradicate the overall deficit.

Ruth Gregory, UK economist at Capital Economics, said: "Survey evidence points to very little annual export growth in the coming months. Granted, the fall in sterling since the referendum will help in time. But any improvement is likely to be slow against a background of fairly sluggish global growth and uncertainty about future trade relationships between the UK and other countries."

Yael Selfin, head of macroeconomics at KPMG, however, suggested the rest of the year could see a marked narrowing of the deficit: "Post the EU-referendum, and with the benefit of a much weakened pound, there is already anecdotal evidence of prospects improving for exports. What’s more, the Bank of England move to ease borrowing conditions should help support businesses wishing to take advantage of the lower pound and invest in capturing new export opportunities."