UK exports ‘stuck in low gear’ as deficit spikes

UK exports have been hit by the strength of sterling. Picture: Getty
UK exports have been hit by the strength of sterling. Picture: Getty
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Britain’s trade deficit narrowed to its smallest in four years in the second quarter but worsening figures for June heightened fears that exports, held back by the strong pound, were “stuck in low gear”.

Data from the Office for National Statistics (ONS) yesterday showed that the gap between imports and exports narrowed to £4.8 billion in the April to June period, £2.7bn lower than in the first quarter of 2015.

The deficit has not been smaller since the second quarter of 2011.

It means trade will have a positive contribution to gross domestic product (GDP) growth for the period, said the ONS, though it could not quantify this.

A second estimate for second-quarter GDP – taking in trade data – is to be published later this month, after the initial estimate of 0.7 per cent.

The figures showed that goods exports rose by £3.1bn to £74.5bn in the second quarter, led by chemicals, fuel and machinery and transport equipment, while imports of goods only rose by £72 million.

But for June, the last month of the period, goods exports fell by £258m compared to May. It helped the wider goods and services trade deficit for the month increase by £716m to £1.6bn.

John Longworth, director general of the British Chambers of Commerce (BCC), said: “The UK’s export performance remains stuck in low gear – little progress is being made.

“More radical steps are needed if we are to hit our target of reaching £1 trillion in exports by 2020, as we are currently on target to miss this by 14 years.”

Ruth Miller of Capital Economics said: “The widening of the UK trade deficit in June is likely to be the start of a further deterioration in the coming months. It seems unlikely that net trade will be a sustained source of support for GDP growth this year.

“Fundamentally, the stronger pound and weakness of demand in the eurozone could lead to a further widening in the trade deficit. Accordingly, the recovery is likely to remain domestic-led for the foreseeable future.”

Chris Williamson, chief economist at Markit, said: “Faced with disappointingly weak global economic growth and a rapid appreciation of its currency, the UK would expect to see exporters under pressure rather than enjoying surging growth, meaning it’s wise to take the official data with a pinch of salt.

“Such caution is especially warranted as the business surveys, including those from Markit and the BCC, show exporters struggling in recent months.”

He added: “The surveys clearly suggest that exporters are enduring a far tougher time in the battle to win overseas sales than indicated by the official data.”