March trade deficit up by a third: Exports to Europe show signs of recovery - Nervousness about possible rate rise grows

BRITAIN'S trade deficit with the rest of the world grew by a third in March to pounds 1.182bn amid signs that export markets in Europe are picking up as others slow down.

The deficit was worse than the City had forecast, exacerbating nervousness about the pace of economic recovery and the possible need for an interest rate increase later in the year. Excluding oil and erratic items - such as ships, aircraft and precious stones - the deficit rose slightly in the month to just over pounds 1.5bn.

The Central Statistical Office also raised its estimates of the trade deficits in January and February by a total of pounds 300m, but it said that the deficit still appeared to be falling slightly on a trend basis. The deficit of just over pounds 3bn in the first three months of the year was the smallest quarterly shortfall between imports and exports since the spring of 1992.

Exports fell by 0.5 per cent in March while imports picked up by 2.5 per cent. Exports to the rest of the European Union rose by 1.5 per cent, while imports rose by 6.5 per cent. This meant that the EU trade gap more than doubled in March to pounds 496m.

Britain recorded a pounds 489m trade deficit with Germany, the largest since August 1990. The trade position with France and the Benelux nations also worsened slightly.

Smoothing the volatility of the monthly figures, exports are rising slowly while imports remain largely unchanged. The Treasury said the figures provided welcome evidence that other economies in Europe were pulling out of recession, which would boost demand for British goods and help to sustain recovery here.

Export prices continued to rise rapidly, suggesting that British companies are using the rise in demand and their greater competitiveness to increase profit margins as well as to expand market share. Import prices are also rising on a trend basis, with basic material imports recording their biggest quarterly price rise since the commodity price explosion of the mid-1970s.

John Marsland, economist at UBS, predicted that accelerating growth in consumer spending would take the visible trade deficit to pounds 17bn for the year as a whole and pounds 20bn in 1995.

Even these figures did not take into account the persistent underestimating of imports, he said. 'The potential explosion in overseas debt arising from successive trade deficits should push base rates to 10 per cent by the end of 1995, as the pound sinks.'

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