Britain's import bill 'could be understated by pounds 10bn': Narrower deficit with EU prompts fears of 'black hole'

THE CENTRAL Statistical Office yesterday raised its estimate of Britain's import bill in the first 10 months of 1993 by pounds 900m, but some economists fear it could still be underestimated by as much as pounds 10bn.

The CSO also reported that Britain's trade gap with the EU narrowed by more than pounds 60m in November to pounds 262m. Combined with the previously published non-EU trade figures, this gave a deficit with the rest of the world in November of pounds 1.035bn, up from pounds 703m in the previous month. Excluding oil and erratic items, such as ships and precious stones, the deficit widened from pounds 1.2bn to pounds 1.4bn.

The CSO said the recent trend improvement in the trade deficit appeared to be halting. Import volumes are rising by 0.5 per cent a month, while export volumes are falling by the same amount. The impact of these trends on the trade gap is being offset by falling import prices and rising export prices.

But John Marsland, at UBS, said the trade figures appeared to be flattered by massive under-recording of imports from the EU. The CSO and Customs & Excise have launched an investigation into this possible 'black hole', but officials say a conclusion may not be reached for months. If substantial under-recording of imports were confirmed, the upward revision to the trade gap could cast serious doubt on the sustainability of the recovery.

Suspicions were raised by a sharp fall in the volume of imports from the EU last year. This is at odds with a rise in imports from outside the EU, which seems more consistent with a revival in spending sucking in foreign goods.

EU trade flows are now calculated from VAT returns, so under-recording of imports may reflect VAT avoidance. Some imports to Britain via Rotterdam may now also be recorded as non-EU rather than EU imports, but the CSO estimates that this reallocation amounts to only pounds 100m a month.

Export figures may also be revised. The CSO said exports between January and October last year were now thought to be pounds 200m higher than previously estimated.

In the United States, the first modest indications of a revival in inflation pressures emerged yesterday with the highest rise in core wholesale prices for a year.

Excluding usually volatile prices for food and energy, the so-called 'core' rate of producer prices rose by 0.4 per cent in January. Although the overall producer price index edged up by just 0.2 per cent, below market expectations, there were signs of unease in US financial markets and the figures appeared to vindicate the recent modest tightening of monetary policy by the US Federal Reserve.

The figures showed that in strong sectors of the economy, upward pressure on prices is making itself felt. Passenger car prices rose by 1.2 per cent, capital equipment prices advanced by 0.6 per cent and construction prices were 0.4 per cent higher. Kit Juckes, of Warburg Securities, said: 'It's not a bleak picture, but there are sporadic signs of inflation coming through.'

Food prices fell by 0.3 per cent due to lower-cost imports from Mexico.

Energy prices jumped by 0.8 per cent, largely due to a 6.5 per cent increase in the cost of petrol.

Unexpectedly, retail sales in the US fell 0.5 per cent in January as trade in many consumer goods fell back. It was the first decline in retail sales for 10 months but economists brushed aside worries that the expansion was easing.