THE UK’s trade deficit, the amount it exports minus what it imports, narrowed in April.
It bodes well for the economy after the trade deficit hindered growth from January to March. But economists are warning not to get over excited due to weaker longer-term trends and the strength of sterling.
The UK’s trade deficit is estimated to have been £1.2bn in April, compared with £3.1bn in March, the Office for National Statistics said yesterday.
It was boosted mainly by exports to outside the EU, with exports of goods climbing by £0.7bn, of which £0.6bn was attributed to non-EU countries.
While exports rose, imports of goods fell by £1.5bn. However, the longer term trend paints a starker picture. In the three months to April, the deficit on trade was £7.2bn – widening by £1.6bn compared with the three months to January.
“If the Eurozone recovery continues in line with our forecasts, UK exporters should start to enjoy improved fortunes in their main market,” said Martin Beck, senior economic advisor to the EY Item Club.
“However, with consumer demand likely to remain fairly strong, the UK will continue to suck in imports and realistically the best that we can hope for is for net trade to cease to be a drag on GDP growth.”
The UK economy grew by 0.3 per cent from January to March, but would have grown by 1.2 per cent if exports had matched imports.
Despite the trade deficit weighing on growth statistics, it has occurred mostly because the UK has outgrown its trading partners. British consumers have demanded more from foreigners than foreigners have demanded from British producers.
The Eurozone economy began growing at a faster rate at the start of the year, but this may fail to lift exports significantly due to the strength of sterling against the euro. A strong pound makes UK-made goods more expensive to foreigners.