Bill Jamieson: Stormy waters, strong headwinds and the engine room's on blink

Published on Tuesday 9 March 2010 21:50

OOPS! Another hole – this time a yawning gap in our trade figures where an export boom should be. Exports are meant to be lifting us to the sunny uplands of recovery, helped by a sharp fall in the pound. But where's the lift?

Instead, exports fell 7 per cent in January, pushing up the deficit on trade in goods from 7 billion to 8bn. Our goods deficit with the European Union widened, while non-EU exports took a big hit, tumbling 12.5 per cent.

This poor performance, if continued in February and March, could push the economy back into recession – a classic "double dip". The pound fell further on the figures yesterday, losing 0.5 per cent against the dollar to $1.49970 and 0.2 per cent against the euro to 1.10300.

So what has happened to the export recovery we desperately need to lift first-quarter growth? Had it not been for stockbuilding and government spending in the final three months of 2009, UK GDP would have posted its seventh consecutive negative quarterly reading.

The contribution of net trade to GDP fell as the year progressed and turned negative for the fourth quarter. Now the figures for January see a continuation of this trend.

A small gain in consumer goods exports was more than offset by falls in exports of chemicals, oil, cars and capital goods. Firms look to be increasing prices and profit margins rather than export volumes – which would be more effective in supporting domestic demand.

And our export mix does not look the best to see an improvement in net trade. For example, China, the strongest growing overseas market, accounted for just 2.9 per cent of UK exports in 2009. The bulk of our exports are targeted at markets that are expected to expand fairly modestly or contract in 2010.

This means, says Lloyds Banking Group economist Trevor Williams, that 2010 may not see as much of a contribution from net trade as expected, making it harder for the recovery to build momentum. He concludes: "The headwinds facing the UK economy in 2010 remain substantial."