Weak pound helps slash trade deficit

THE WEAK pound has helped cut the UK’s trade deficit by making imported goods more expensive and exported services cheaper, according to the Bank of England’s quarterly bulletin.

However, the weak state of the financial services industry meant exports did not rise as strongly as may have been hoped.

The 25 per cent fall in sterling from mid-2007 to early 2009 halved the trade deficit from three per cent of GDP in the second quarter of 2007 to 1.6 per cent in 2011’s third quarter.

Much of the improvement was made up by falling imports, because financial services have been going through a weak patch and because services are less sensitive to price changes than goods, negating some of the advantage of a weak currency for a services-heavy country like the UK.