Record UK deficit crushes hopes of recovery in 2012

 

The UK trade deficit widened to a record level in June, official figures showed yesterday, as exports plunged across the world.

The goods and services deficit – the gap between imports and exports – rose to £4.3bn from £2.7bn in May, the Office for National Statistics (ONS) said, the highest level since comparable records began in 1997. The increase was driven by a 4.6 per cent month-on-month fall in the value of exports, which was "worryingly" not just to countries within the troubled eurozone but farther afield.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Hopes that net trade could boost overall economic activity have proved to be horribly misplaced in the first half of 2012."

While exports of traded goods to EU countries fell by 7.2 per cent month on month in June, they were down by an even larger 9.2 per cent to non-EU countries, the ONS said.

Chancellor George Osborne is relying on a shift in the economy towards the private sector, particularly in manufacturing and exports, to withstand his far-reaching package of public-sector spending cuts.

But the UK is in the throes of the longest double-dip recession since the 1950s after the economy shrank by a larger-than-expected 0.7 per cent in the second quarter.

Taking the second quarter of 2012 as a whole, trade in goods and services was estimated to have been in deficit by £11.2bn, compared with a deficit of £7.8bn in the preceding quarter and again the highest since records began.

However, the ONS said that, for May and June 2012, data may have been affected by the changed pattern of public holidays.

Excluding oil and erratic items, in the second quarter the volume of exports was 3.3 per cent lower than in the preceding quarter, while the volume of imports fell 0.5 per cent

The gloomy figures follow a downbeat assessment of the economic outlook from the Bank of England.

David Kern, chief economist at the British Chambers of Commerce, said: "The rebalancing of the UK economy towards exports is taking too long. British exporters need more Government support to help them compete globally."

The fall in total exports of goods was driven by lower trade of oil, particularly to the US, chemicals to all non-EU countries, and cars, particularly to China.

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