Friday 9 September 2016 10:03 am

UK's trade deficit narrows in July as the weak pound cheers exporters

A weak pound may be bad news for holiday makers – but exporters were celebrating in the aftermath of the Brexit vote, new data has suggested.

In fact, tumbling sterling pushed exports up to such a degree that the UK's trade deficit narrowed by £1.1bn to £4.5bn in July, the first full month after the EU referendum, with exports increasing by £800m, while imports decreased by £300m. 

The deficit on trade in goods also narrowed to £11.8bn, £1.2bn lower than in June. That's good news for manufacturers – and figures from Markit suggested the sector continued to do well in August, with the purchasing managers' index jumping to its highest in 10 months

Meanwhile, between the three months to April and the three months to July, the UK's trade in goods deficit with the EU widened by £100m to £23.6bn.

Brexit or bust? 

A lot has been made of the potential for trade partnerships following the Brexit vote – and the falling pound has helped exporters in the short term. 

But analysts warned today's figures don't necessarily mean Brexit will mean good news all round.

"[This] is emphatically not a sign that sterling’s depreciation already is having beneficial effects," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. 

"July’s deficit greatly exceeded its 12-month rolling average, £3.7bn. On a three-month-on-three-month basis, export volumes fell 6.9 per cent, while import volumes held steady.

"Sterling’s depreciation, which began in November, clearly isn’t supporting the economy yet. This is partly because exporters have responded to the pound's drop by raising their sterling prices sharply—export prices excluding oil and erratics rose 10.7 per cent year-over-year in July—offsetting most of the boost to competitiveness."

Suren Thiru, head of economics at the British Chambers of Commerce, added that the figure remained a "cause for concern". 

“It is still too early to draw firm conclusions on the effects of the EU referendum on overseas trade. For now, the UK's near-term trade prospects will be largely determined by how much the benefits of lower sterling for exporters are offset by higher input costs.

“Over the long-term, the UK’s trade position will be driven by how successful the government is in delivering the best possible terms of trade for the future, both with the EU and with markets further afield. However, as the government begins to renegotiate the UK’s global trade position, it is vital that the Autumn Statement is used to improve support for those firms looking to access new markets – and a competitive business environment here at home.”