Fears over growth in UK economy as trade gap balloons

Britain's trade deficit is a cause for concern, business leaders have said after news that it had grown to its biggest since the financial meltdown.

The ONS said the UK's trade gap widened amid rising imports of cars and clothing. Picture: AP/Eugene Hoshiko

The gap for the first three months of 2016 widened to £13.3 billion from £12.2bn in the previous quarter – its biggest for any calendar quarter since the start of 2008.

Analysts said it provided fresh evidence that the UK economy is stalling with one describing the figures as “truly horrible”.

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The deteriorating backdrop came despite data for March alone revealing some improvement with the deficit in Britain’s trade in goods narrowing marginally to £11.2bn, slightly under economists’ expectations of £11.3bn.

The British Chambers of Commerce, which speaks on behalf of thousands of UK businesses, said the latest long-term figures were a “cause for concern”. The organisation’s chief economist David Kern said: “In spite of the small improvement seen in March, the UK’s trade deficit worsened over the quarter and remains unacceptably large.

“The trade figures are a further reminder that our external position remains vulnerable. It needs to be a national priority to support businesses in exporting goods and services, and additional efforts are needed to help firms to break into new and faster-growing markets.”

The data from the Office for National Statistics (ONS) follows last month’s official figures which showed that gross domestic product (GDP) grew by 0.4 per cent in the first three months of 2016, down from 0.6 per cent in the fourth quarter of last year, following an industrial slump.

While last week a closely-watched survey by Markit/Cips noted that manufacturing sector activity had contracted for the first time in more than three years, with markets dogged by a slowdown in global trade led by easing growth in China.

The ONS said the UK trade gap widened over the quarter due to a £1.9bn rise in imports such as mechanical machinery, cars, clothing and footwear.

Over the same period exports rose by only £500 million, with chemicals products the top performer.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “A truly horrible first-quarter trade performance that clearly weighed down on GDP growth and bodes ill for the first quarter current account deficit.

“UK exports have struggled in recent months, as they have clearly been hampered by moderate global demand.”

Kay Daniel Neufeld, an economist at CEBR, added: “Anyone who had hopes that UK exports would play a role in decreasing the trade deficit (and thus the current account deficit, all else being equal) must be disappointed by the numbers.”

A spokesman for the Department for Business, Innovation & Skills said: “We have taken a number of steps to boost exports.”