Exports defy strong sterling

The strong pound is showing no signs of triggering the widely predicted plunge in exports, according to new figures for Britain's trade deficit.

The gap between exports and imports widened slightly to pounds 950m in June from pounds 733m in May, according to figures from the Office for National Statistics. But rising imports rather than falling overseas sales explained the deterioration.

The trade shortfall with non-EU countries alone fell sharply from pounds 713m in June to only pounds 65m in July. This was thanks mainly to one-offs such as the shipment of a pounds 400m drilling platform from Tyneside across the North Sea to Norway.

Even excluding such items, the figures defied warnings of a nosedive in exports made by industrialists and many economists. The overall deficit shrank in underlying terms from pounds 1.1bn in May to pounds 974m in June.

"If you take out the erratics the trade balance is probably widening, but the cause is higher imports rather than lower exports," said Dharshini David, an economist at HSBC Markets. "It suggests that windfall spending is sucking in imports."

Excluding both oil and erratic items, the underlying volume of imports from the rest of the world rose by 3.8 per cent in the three months to June, their growth picking up from near zero. However, underlying growth in export volumes has remained robust, picking up from 2.7 per cent in May to 5 per cent in June. Growth in volumes shipped to non-EU markets was 4.4 per cent in the three months to July.

Many analysts continue to expect the impact of the strong pound will be reflected in the official figures before long.

"Business surveys have shown a massive deterioration in export orders," said Michael Saunders of Salomon Brothers. The surveys typically predicted the path of actual exports by one or two quarters, he said.

Some economists are becoming less convinced that the widely expected plunge will materialise, however. Adam Cole at James Capel pointed out that normally the impact of sterling's appreciation on export volumes should have been at its height about now.

"Exporters have been able to take the impact on their profit margins because they had sustained virtually all of the improvement in competitiveness brought about by the devaluation in 1992," he said. "The impact of the higher pound on export volumes and output could turn out to be very muted."

The pound reacted little to yesterday's figures. Its index against a range of currencies ended up 0.3 at 101.9.

Comment, page 17

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