Import surge widens UK trade deficit

BRITAIN’S trade deficit exploded in the three months to July to a record £13.2bn, dashing hopes among policymakers and economists that net trade might help to drive economic growth higher.

The gulf between imports and exports of goods widened to £8.7bn from £7.5bn in June, the biggest since the series started in January 1998 and confounding economists who had forecast the deficit to remain broadly unchanged.

The widening of the deficit was caused by a surge in imports of 2.4 per cent on the month. Import volumes in May to July rose 17.2 per cent year-on-year, the highest growth since 1982.

City economists expressed disappointment and frustration that a weaker sterling was not feeding through into better net trade figures. Capital Economics’ Vicky Redwood said: “A boost to net trade from the lower pound was always going to take a while, but this is getting ridiculous.”

She added: “The overall trade deficit widened from £3.9bn to £4.9bn, setting a poor starting point for the third quarter as a whole. Things would have to improve dramatically in August and September for the trade deficit in the third quarter overall not to widen from the second quarter average of £4.1bn. At the moment, then, net trade is on course to be a drag on GDP growth in the third quarter.”

However, some economists were more upbeat. Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: “This data is, in a way, encouraging. Indeed, the widening deficit was accounted for by a strong increase in imports, in particular, intermediate and investment goods.”

“This may signal robust activity in the industry sector in the next couple of months,” Goodwin added.

With tentative signs that the world economy is faltering, global demand may weaken significantly over the coming months, weighing on exports. The continued slowdown in the Eurozone, Britain’s largest export market, is of particular concern to economists.