The UK trade deficit widened in September, but dipped in the first full quarter since the Brexit vote, as sterling falls showed little effect

Billy Bambrough
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The lower pound has yet to feed through into trade volume or prices, according to the ONS
The lower pound has yet to feed through into trade volume or prices, according to the ONS (Source: Getty)

The UK’s deficit on trade in goods and services widened in September, Office of National Statistics data has shown.

The gap grew by £1.5bn from August to £5.2bn, with exports decreasing by £200m and imports rising by £1.2bn.

The deficit on trade in goods was £12.7bn in September 2016, widening by £1.6bn from August 2016.

This widening reflected a decrease in exports of £200m to £26.1bn and an increase in imports of £1.3bn to a record £38.8bn.

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There were increases in imports of ships, material manufactures, road vehicles and oil.

Commenting on today’s trade figures, ONS statistician Hannah Finselbach said:

In this first full quarter since the EU referendum, there was a small reduction in the trade deficit, but so far there is little evidence in the data of the lower pound feeding through into trade volume or prices.

For the quarter the total trade deficit for goods and services narrowed by £1.6bn to £11bn.

There was a £4.5bn – 6.1 per cent – increase in exports of goods and a £3.1bn – 2.8 per cent – increase in imports of goods over the last three months; these increases were partially offset by a £100m – 0.1 per cent – decrease in exports of services and a £300m – 0.7 per cent – decrease in imports of services.

Howard Archer chief UK and European economist at IHS Global Insight, said:

A major hope for the UK economy going forward is that the substantial overall weakening of the pound since the UK voted to leave the European Union in June’s referendum will increasingly feed through to boost foreign demand for UK goods and services.

Sterling fell to a 31-year low against the US dollar and a five-year low against the euro in October. It also fell to a record low on its trade-weighted index. While sterling has recently come off these lows, it is still substantially down and at a highly supportive level for exporters.

The substantially weakened pound also makes imports to the UK markedly more expensive, which could help some domestic companies gain market share.

Mark Emmerson, HSBC’s head of global trade and receivables finance UK, commenting on the quarterly numbers said:

Nearly three-quarters of would-be SME exporters told us they feel held back by their lack of experience and knowledge – and they are looking to government, banks and other business groups to provide further support.

Together, we need to do more to encourage the sharing of best practice, offer more-tailored advice, and to give exporters a voice at the policy-making table - particularly as trade negotiations for the UK begin in earnest.

If we can do this and do it well, the landscape for British businesses abroad is only set to improve further, which would be win-win for both our economy and our entrepreneurs.

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George Nikolaidis, senior economist at EEF, the manufacturers’ organisation, said:

Today’s data are a positive sign that exports are heading in the right direction, building on the strong momentum seen since the beginning of the year. Nevertheless, we should be cautious before rushing to attribute this growth entirely to the depreciation of the pound.

While the benefit is filtering through relatively quickly to more commoditised sectors, most high-value manufacturers will have to wait before they see the full boost. And the flip side of this comes through more expensive inputs, raising the costs of production and squeezing manufacturers’ margins on domestic sales.

The latest growth in exports is largely a demand story, but in time, the depreciation of the pound should support a better export performance across manufacturing sub-sectors.

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