Record high trade deficit hits hopes of recovery

The gap between goods exports from Britain and products imported from abroad widened to 9.25 billion in December from 8.46bn the previous month, heaping pressure on the Bank of England's monetary policy committee (MPC), which will today announce its latest decision on interest rates.

Economists were last night predicting the Bank would hold rates at 0.5 per cent but few were willing to entirely rule a change out as arch-hawk Andrew Sentance's calls for a rise gain traction with other members of the nine-strong committee.

December's "hugely disappointing" trade figures - the highest since records began in 1980 - were partly blamed on the snow, which rendered it difficult for manufacturers to shift their goods out of the country.

But Vicky Redwood of Capital Economics said the underlying trend "was still pretty dismal", adding: "The big picture is still that the external sector is not giving the economy the support it needs to weather the fiscal squeeze."

Howard Wheeldon, senior strategist at BGC Partners, said: "The real point of concern for those of us that still believe the trade gap matters is that imports, together with the cost of imports (imported inflation], are continuing to rise meaning that the trade gap will, unless exports put on a sudden spurt, widen at a more alarming rate."

The trade blow was delivered as the coalition government launched a trade and investment white paper yesterday, aimed at helping small firms in particular to break into export markets.

A spokeswoman for Prime Minister David Cameron admitted the government needed to "do more" to boost exports as ministers are relying on trade to keep the economy going while public sector cuts bite.

Unveiling the white paper in Parliament, Business Secretary Vince Cable conceded that Britain has "consumed too much and exported too little".