1bn pounds deficit casts doubt on export-led recovery

THE TRADE deficit almost tripled to pounds 1bn in September from an exceptionally narrow shortfall the previous month, dampening hopes that exports might play a more significant role in the recovery.

The September figures followed a surprisingly low deficit of pounds 347m in August and left the trade balance for the first nine months of the year an estimated pounds 8.5bn in the red.

The figures are compiled from the latest European Union trade data, accounting for about two- thirds of all UK trade, based on VAT returns from importers and exporters, and from trade with the rest of the world measured by Customs agents. In recent months the EU statistics have been subject to sharp revisions, raising doubts in the City about their validity.

The Central Statistical Office said yesterday these teething problems were being resolved, but that assertion was greeted with disbelief in the City.

However, the figures do suggest that on a trend basis, the deficit is continuing to narrow slightly. After stripping out the effect of exchange rate movements and price changes, the September figures show that exports continued to rise but imports were stagnant.

On this basis, the volume of exports rose 2 per cent in the three months to September after excluding trade in oil and erratic items such as ships, aircraft and precious stones. Import volumes were unchanged in the latest three months.

In addition, recent figures for trade with countries outside the EU showed that in October the deficit narrowed sharply to pounds 293m, and may point to improving trends for overall trade in the fourth quarter.

The Treasury described the figures as encouraging. 'It is not a bad situation when you consider that our demand is expanding, but competitors' demand is not.'

In September, the value of imports rose to a record pounds 11.315bn while export values eased to pounds 10.312bn. Trade with the EU swung to a deficit of pounds 82m from a surplus of pounds 381m the previous month, while the deficit in trade with countries outside the EU widened to pounds 921m from pounds 728m.