UK trade balance widens again a year after the Brexit vote

Alys Key
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Inside Jaguar Land Rover Factory Plant
The wheels came off exports to non-EU countries as car and aircraft sales slumped (Source: Getty)

Britain’s trade deficit with the rest of the world went up again in June, as the amount of goods and services being imported to the country grew.

The UK's total trade deficit widened by £2bn to £4.6bn, according to the Office for National Statistics. This marks the widest gap since September last year.

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Between the first quarter of the year and the second quarter, the trade deficit edged up by £0.1bn to £8.9bn.

Exports to EU countries in the period from April to June increased by two per cent since the first quarter, mainly due to an increase in exports of chemicals and machinery.

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But exports to the rest of the world fell 1.4 per cent as transport equipment and machinery sales declined.

An overview of the full year since the EU referendum result showed that the trade deficit has stabilised since it nearly doubled in the aftermath of the vote.

The ONS said that by overlooking the effect erratic commodities such as aircrafts and precious metals, the total trade deficit has in fact been relatively stable over the whole period.

What about the pound?

However, the depreciation of sterling has pushed up the price of both exports and imports over the past year, though both fell in the second quarter of this year.

Export prices were down one per cent in the period compared to the first quarter, marking the first negative growth since the fourth quarter of 2015. Import prices also fell 0.8 per cent, lagging behind the 1.2 per cent increase in the pound's value during this time.

Read more: UK manufacturing fell in June, dragging industrial production lower

How the City reacted

Allie Renison, head of EU and trade policy for the Institute of Directors, said businesses "should not be alarmed by the overall headline figure if exports and imports continue to rise together."

He explained: "Imports are critical to production for many British companies that export goods, and are also often a sign of robust domestic demand."

Philip Shaw, an analyst at Investec, said noted that exports outpaced imports during the second quarter. "This may raise hopes that net trade will make a more consistent positive contribution to growth over 2017 as whole," he said. "But our suspicion is that this will not quell the view that economic reforms are necessary to lift exports and that a weaker exchange rate on its own will not do the job."

Howard Archer, chief economic adviser at EY ITEM Club, concluded: "Evidence of rebalancing, at least in the ‘hard’ data, remains absent."

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