Devaluation drives UK pounds 200m further into red

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The Independent Online
THE STEEP devaluation of the pound helped to drive the current account pounds 200m deeper into the red to pounds 1.19bn in November, highlighting the obstacle to recovery posed by Britain's growing reliance on imports.

Ignoring the figures, the stock market hit a new high for the second day running on rising hopes that German interest rates would be cut early in the new year. The FT-SE 100 index climbed by 34.3 points to close at a record 2,842.0.

Official figures showed that imports by value jumped to pounds 10.57bn, a gain of 2.5 per cent on the month as sterling's devaluation continued to push up import prices. Since 16 September, when sterling was forced out of the European exchange rate mechanism, import prices have shot up by a total of 10 per cent - passing on the bulk of sterling's depreciation.

However, exports also rose in value, by 0.5 per cent, to a record pounds 9.18bn, bringing the gain since August to 3.5 per cent. The resulting visible trade deficit of pounds 1.39bn was the largest since July 1990. The current account was calculated after the Central Statistical Office projected a surplus of pounds 200m on invisible trade.

Excluding trade in oil and erratic goods - such as ships, aircraft, oil rigs and precious stones - Britain's underlying trade deficit widened by pounds 200m to pounds 1.63bn. This was the highest figure for 1992 so far, bar August.

The latest figures highlight the structural nature of Britain's balance of payments problem as big deficits coincide with continued recession. Heavy reliance on foreign goods has played a big role in curbing recovery prospects this year. Domestic demand in the UK economy began to recover in 1991 and continued expanding into the third quarter of 1992, the latest quarter for which figures are available, but there was also a sharp expansion in net import growth.

However yesterday's figures show that on a real or volume basis, Britain's foreign trade performance may be improving.

Excluding trade in oil and erratics, the volume of exports climbed by 4 per cent in the three months to November. By comparison, import volumes experienced no growth in the latest three months.

A rough guide to trends in the real trade gap indicates that after a steep widening in 1988 and 1989, the shortfall has shrunk sharply in the past two years.

Moreover, further export growth appears likely, while higher import prices could soon blunt demand for foreign goods.

US gross national product expanded at an annual rate of 3.4 per cent in the third quarter, slightly less than the recent estimate of 3.9 per cent. But the downwards revision partly reflected a smaller build-up in inventories. This encouraged economists because it meant that future demand was less likely to be satisfied from stock.

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