Trade deficit surge hints at more QE from Bank

BRITAIN'S trade deficit took a surprise lurch for the worse in May, figures yesterday revealed, increasing the likelihood that the Bank of England will have to pump more money into the flagging economy.

The gap between imports into the UK and exports shipped to the rest of the world surged to 8.5 billion in May from 7.6bn the previous month, catching out economists who had predicted a fall to 7.2bn.

In a double blow to the global economy, the US trade deficit also leapt, to the highest in more than two-and-a-half years, driven by a huge rise in oil imports.

The UK figures, described as "dreadful" by Jonathan Loynes of Capital Economics, boosted talk of further quantitative easing (QE) as even those sectors that were storming ahead at the start of the year - in particular manufacturing - begin to stall.

Minutes for the June meeting of the monetary policy committee - the latest available - show that several members raised the prospect of extending QE beyond its current level of 200bn.

Minutes of July's MPC meeting are due to be released next week but economists said yesterday's shock trade data had narrowed the odds on the central bank printing more money in forthcoming months.

Figures published yesterday also revealed a surprised dip in inflation to 4.2 per cent, heightening expectations that an interest rate rise will be kicked into next year.

Chris Williamson, chief economist at research group Markit, said: "The trade figures will certainly add to calls for a further loosening of policy via more quantitative easing.

"Without growth of overseas trade, the doves on the monetary policy committee are likely to be increasingly concerned that the economy could slip back into recession."

Although UK exports increased by 4.2 per cent in May, boosted by a record shipping of silver products, this was overshadowed by a 5.8 per cent hike in imports, driven by a rise in chemicals and pharmaceuticals. Car exports from the UK also plunged by almost 10 per cent.