Imports threaten recovery hopes

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THE TRADE figures for January, the first to exclude temporarily trade with the European Community, showed the smallest deficit since October. The shortfall narrowed by pounds 324m to pounds 1.02bn.

The figures, which will exclude the UK's 55 per cent of trade with the EC until mid-June, suggest that import penetration is rising and that the European recession may derail any export-led recovery.

But record exports and imports close to the all-time high in trade with the rest of the world may be another tentative indicator of an end to recession. It follows higher retail sales and a quicker expansion of the narrow-money supply.

The slimmed-down trade statistics follow the advent of the single European market on 1 January, when customs borders throughout the EC were abolished. Figures for trade with the EC are now based on VAT returns but will not be published until the new arrangements are fully established.

The narrower deficit last month followed a rise in exports to a record pounds 4.296bn and a slight fall in imports, to pounds 5.316bn.

Excluding trade in oil and erratic goods like aircraft, ships and precious stones, the volume of exports rose by 3.6 per cent in January while import volumes expanded by only 1.6 per cent.

However, in the three months to January - a better guide to the underlying trend - export volumes rose 4 per cent but import volumes climbed 6.5 per cent, suggesting that import penetration is rising even before recession ends.

A 1 per cent fall in the value of exports with Western Europe, excluding the EC, in the latest three months compared with a year ago may suggest that European recession is hurting export prospects. These countries are chiefly members of the European Free Trade Area and some of these economies are increasingly integrated with the Community.

In January, the price of exports rose by 3.43 per cent in sterling terms while import prices edged up by 0.52 per cent.