Consumer spending lifts UK trade deficit

Britain's trade deficit with the rest of the world widened in May as surging consumer demand sucked in more imports, figures released yesterday showed.

Britain's trade deficit with the rest of the world widened in May as surging consumer demand sucked in more imports, figures released yesterday showed.

The global trade gap rose from £4.59bn in April to £4.62bn in May, mainly due to a deterioration in trade with non-EU countries, where the deficit climbed to £2.29bn.

Although there was a surge in exports of cars, this was not enough to offset the increase in imports of capital goods to help UK manufacturers meet domestic consumer demand. The deficit in goods and services rose from £3.1bn to £3.4bn - its highest since January.

Economists said the slight rise in the deficit was unlikely to worry interest rate setters at the Bank of England unduly, and could even act as a drag on growth, tempting the Monetary Policy Committee to hold off from raising rates again next month.

The pound also took the figures in its stride, falling only briefly against the dollar before recovering to trade near its three-month peak of $1.85.

"It will take a considerably worse monthly trade figure than this to worry the MPC and the markets," the Centre for Economics and Business Research said. But it added: "We believe such a nasty surprise may well come some time in the next few months."

The trade gap with the EU fell from £2.42bn to £2.33bn in May. But the impact of this was offset by a decline in the surplus in services, which also fell in May from £1.46bn to £1.2bn.

Meanwhile, the business lobby called on Gordon Brown to redouble his efforts to squeeze more efficiency out of the public sector in his public spending review on Monday. The Institute of Directors said the Government's pledge to cut 40,000 jobs and £20bn of waste from the public services was "a step in the right direction".