UK trade deficit narrows on a drop in domestic demand

THE UK’s trade deficit was smaller than expected in February this year, dropping from January’s level as demand for imported goods falls.

Overall, the trade deficit was £2.1bn in February, down from £2.2bn the month before. At £4.8bn, the deficit in the last three months has almost halved from the previous quarter.

The UK’s deficit in trade of goods two months ago was £9.1bn, down from £9.5bn in January – but the drop was driven by falling outward trade.

Trade flows in both directions were more muted, but a £380m fall in exports was outstripped by a £749m drop in imports. The UK’s services sector ran a £7bn surplus during February, down slightly from January’s £7.3bn, as imports rose by £225m and exports stayed almost completely flat.

“As long as demand in the UK’s main continental export markets remains weak, the economy is likely to struggle to rebalance towards exports,” said Samuel Tombs of Capital Economics. “What’s more, strong growth in investment, which is typically import-intensive, is likely to prevent the overall trade deficit from narrowing much. For now, then, the UK’s economic recovery is likely to remain largely a domestic affair.”