Growing trade gap likely to weigh on economic recovery

Britain's trade gap has grown to its highest level since 2010, triggering fresh concerns over the strength of the economic recovery.

As China celebrates the Year of the Monkey, the country's slowing economy is weighing on UK growth hopes. Picture: ChinaFotoPress via Getty Images

Official figures yesterday showed that the deficit – the difference in value between UK imports and exports – widened by £300 million to £34.7 billion in 2015.

This came despite an improvement in December, with the deficit reducing to £2.7bn from a revised £4bn in November.

But the narrowed trade gap showed little sign of a pick-up in exports, with the gap easing thanks only to a fall in imports.

UK firms struggled to sell products abroad last year as the strong pound made British goods more expensive, while the global economic woes and slowdown in China added to the trade troubles.

The figures from the Office for National Statistics also show exports of goods to the European Union fell by £11.6bn between 2014 and 2015, as the weak euro made UK products more expensive.

Exports to China, meanwhile, have fallen since 2011 and there are fears the slowdown in China’s economic growth rate will further hit the UK over the year ahead.

David Kern, chief economist at the British Chambers of Commerce, called for more help to allow UK businesses, particularly smaller ones, to tap into new export markets.

He said: “Despite an improvement in the UK’s trade deficit in December, it still worsened in 2015 as a whole compared with 2014.

“While the deficit in goods worsened over the long term, there has been a gradual improvement in our surplus in services. Much more needs to be done to improve our trading position, with particular emphasis on helping small businesses to start exporting, as well as helping firms to break into new export markets.”

Allie Renison, head of trade policy at the Institute of Directors, said the rise in the deficit last year was “unsurprising given the sharp fall in the price of oil, which knocked British exports and made imports a little cheaper for British customers”.

She added: “Meeting the government’s ambitious target of £1 trillion worth of overseas sales by 2020 will be a monumental challenge.”

Chancellor George Osborne warned recently that the economy was facing a “dangerous cocktail” of risks from overseas in 2016, as growth cools in key emerging markets, stock markets tumble and the fall in oil prices hits demand from oil-exporting nations.

Howard Archer, chief UK and European economist at forecasting think-tank IHS Global Insight, said Britain’s trade gap “remained uncomfortably high”.

“Despite December’s improvement, it looks highly likely that negative net trade weighed down again on GDP growth in the fourth quarter of 2015,” he observed. “UK exports have clearly struggled in recent months, as they have been hampered by sterling’s overall strength in 2015.”