Plunging exports push UK trade deficit to widest in seven years

The coalition’s hopes that the UK might crawl out of recession in the second quarter were dashed yesterday after official figures showed the trade deficit has widened to its highest level in almost seven years.

The goods and services deficit – the gap between imports and exports – rocketed to £4.4 billion in April, up from £3bn in March, as exports to the eurozone plunged.

April’s trade gap was the highest since August 2005 and the second widest since comparable records began in 1992.

The increase was driven by an 8.6 per cent drop in exports, including a 6.8 per cent fall in exports to the EU, the UK’s biggest trade partner.

However, the decline in exports to non-EU countries was even sharper, with a 10 per cent drop to £11.8bn as markets such as China, the US and Russia bought fewer cars and pharmaceuticals. Analysts at the CEBR said this was an “unwelcome development”, as emerging economies were the UK’s best chance for export growth in the midst of the eurozone crisis.

Chris Williamson, chief economist at Markit, described the figures as “truly horrible” and said they highlighted the mounting impact the weakening global economy is having on the UK.

He added: “We already know that manufacturing is likely to act as a drag on the economy in the second quarter, with output falling 0.7 per cent in April and on course for a further decline in May.

“With the extra bank holiday already estimated to result in a 0.5 per cent loss of GDP in the second quarter, there seems little chance of the UK escaping another quarter of decline.”

Chancellor George Osborne and Bank of England governor Sir Mervyn King unveiled plans on Thursday night for a £100bn emergency bank funding scheme to kick-start lending to households and businesses in a bid to boost growth. Under the “funding for lending” scheme, banks will have access to cheaper short-term loans, but only if they increase lending to the non-financial sector. The Bank will also provide short-term liquidity to help the banks.

Graeme Leach, chief economist at the Institute of Directors, described the move as “welcome, but limited”.

He said: “The funding for lending scheme helps the supply of money and the demand for it, by lowering the cost of borrowing. But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost.”

The UK entered recession after the economy shrank 0.2 per cent in the first three months of the year, following a 0.3 per cent decline in GDP in the final quarter of 2011. Economists warned of further contraction on the back of yesterday’s figures.

Howard Archer, chief UK economist at IHS Global Insight, said: “With the trade deficit widening in April and construction output again disappointing, the chances of the economy avoiding further contraction in the second quarter are dwindling.”

Official construction data, also released yesterday, showed output fell 13 per cent in April compared with the previous month, driven by a fall in government projects such as housing and infrastructure.

Scottish Building Federation chief executive Michael Levack said: “If the UK government is serious about rebuilding economic confidence and ending continuing job losses in the construction sector, it needs to change course and start investing in the infrastructure the sector and the economy as a whole so desperately need.”