UK trade deficit narrows but recovery uncertain

The UK trade deficit has narrowed. Picture: PAThe UK trade deficit has narrowed. Picture: PA
The UK trade deficit has narrowed. Picture: PA
BRITAIN’S trade deficit narrowed sharply to a 17-month low in December, but hopes over a re-balancing of the economy were blunted by slower-than-expected manufacturing growth.

The deficit fell from £3.6 billion in November to £1bn, the lowest monthly figure since July 2012 and the steepest month-on-month drop since records began in 1998, according to the Office for National Statistics (ONS) yesterday.

The Treasury hailed the figures as showing “further evidence that the government’s long-term economic plan is working”, as goods exports for 2013 as a whole reached a record annual high of £304.3bn.

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But economists said official data also out for the manufacturing sector gave a mixed picture.

Manufacturing only expanded by 0.3 per cent over the month and the sector’s performance over the quarter was worse than estimated in last month’s wider economic growth figures.

The sector shrank by 0.6 per cent over the course of 2013, less than it did the year before but still the second annual drop in succession as its performance remains well below its pre-recession peak.

December’s improvement in trade was bolstered by rising oil, chemicals and aircraft exports and a fall in imports of aircraft and ships.

The deficit in goods fell from £9.8bn to £7.7bn, while the surplus in services increased from £6.2bn to £6.7bn.

The ONS said the goods deficit with countries outside the EU had narrowed in each of the last six months.

The trade deficit for the whole of 2013 was £29.9bn, an 11 per cent fall on 2012.

Improvements in manufacturing and trade are seen as key to re-balancing the economy away from consumer spending improvements, which have so far been leading the recovery.

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Martin Beck, of Capital Economics, said: “December’s figures on industrial production and trade offer some mixed messages on whether the economy is achieving better balanced growth.”

He said the fall in aeroplane and ship imports showed the narrowing in the deficit was partly down to “erratic factors” and that it was likely to widen again.

Howard Archer, pictured, chief UK and European economist at forecasting consultancy IHS Global Insight, said: “There are signs in the December trade data that gradually improving domestic demand in the eurozone and firming global growth is starting to feed through to help UK exports.

“Looking ahead, it is still hard seeing net trade making a sustained, significant positive contribution to UK growth any time soon, especially as imports are likely to continue to be underpinned by decent UK domestic demand.”

Annalisa Piazza, an economist at Newedge Strategy, added: “The current scenario for UK factory activity remains solid but the pace of growth is unlikely to accelerate further.”