£3.5bn trade gap fuels fears of triple dip recession

The monthly trade gap for goods and services of £3.5 billion was better than the £3.7bn deficit in October but was larger than predicted.

And trade is still likely to act as a drag on gross domestic product (GDP) because the deficit for the fourth quarter looks set to be higher than the year before.

Martin Beck, an economist at Capital Economics, said:  “November’s trade data means we continue to think that ‘triple-dip’ will emblazon the headlines when the first estimate of GDP is released on 25 January.”

The slight narrowing in the deficit was driven by an improvement in the balance with EU countries, especially Germany. But Beck said the weakness of the eurozone economy means that further support was “a distant prospect”.

The UK’s deficit with non-EU countries was virtually unchanged month-on-month.

David Kern, chief economist at the British Chambers of Commerce, said the deficit must fall as part of a healthier economy.

“Although the deficit has fluctuated over the course of 2012, the average of £3bn per month is too large and shows that we are not yet seeing sufficient progress in rebalancing Britain’s economy towards net exports,” he said.

An upturn in goods exports in November added to signs that the manufacturing sector improved in the three months to December.

However, the yawning trade gap adds to the already strong likelihood that Bank of England policymakers will keep interest rates at their historic low at their monthly meeting today.

They are also expected to hold fire on further asset  purchases at this stage.