Deficit for UK traded goods worst in year

Kathleen Brooks
THERE were more signs that the UK will face a tough slog back to economic recovery yesterday after trade data for the end of last year was weaker than expected.

The UK’s deficit in traded goods widened to £7.3bn in December from £6.8bn the previous month; this is the largest deficit for a year as imports rose more than exports.

But there was a glimmer of hope for the UK’s exporters as the volume of exported goods jumped by 3.2 per cent in December. This adds to further evidence that exports are on an upward trend; the CIPS/ Markit measure reported further gains in export volumes in January.

Both imports and exports were boosted by increased demand for new cars both at home and abroad as a result of governments’ car scrappage schemes. Beacuse these schemes are expected to come to an end, this boost to the trade figures is likely to be temporary.

Crucially, export growth remains weaker than the growth in imports and it could be de-railed by a stronger pound or weakness in the global economic recovery.

Yesterday’s trade data seemed to quash notions that the UK’s economy could stage an export-led recovery.

The outlook for domestic demand also looked weak, after the British Retail Consortium reported that like for like retail sales fell by 0.7 per cent in January compared to the year before. Cash strapped consumers kept away from the high street due to adverse weather conditions and the return of the VAT rate to 17.5 per cent.

The trade and domestic demand data helped to push sterling to its lowest level in three
weeks aginst the euro and the US dollar as investors worried about the prospects for the UK economy.

“Overall it remains hard to see how this economic recovery can continue to gain momentum,” said Vicky Redwood, an economist from consultancy Capital Economics after the trade figures were released.