Export recovery narrows Britain's trade gap

Britain's deficit in trade in goods with the rest of the world narrowed in September, reflecting an improvement in trade with the European Union, official data showed.

But despite September's improvement, the Office for National Statistics said the trend suggested the UK trade deficit was widening.

The ONS said the global goods deficit narrowed to £2.7bn in September from a revised £3.4bn shortfall in August.

Jonathan Loynes, the chief economist at Capital Economics, said: "August's deficit was revised sharply upwards from the previous £2.8bn, so taking the two months together, the picture is quite a bit worse than expected and could possibly prompt a downward revision to Q3 GDP."

Dave Page, an economist at Investec, said: "August saw a very large drop in exports which led to the ballooning of the deficit. In September we have seen a partial recovery of exports but the overall level of imports is still fairly weak."

Sterling ended the week sharply higher against the dollar, hitting a two-and-a-half year peak of $1.5892 to the pound yesterday on concerns about US economic prospects.

Separately, the European Commission and Paris-based Organisation for Economic Cooperation and Development are both about to slash their 2003 economic growth forecasts for the eurozone to about 2 per cent, recognising recovery will be slow to materialise, draft figures showed yesterday.

The figures will add to concerns about the world economy stoked this week by the aggressive half point cut in US interest rates, seen as an indicator of the depth of concern at the Federal Reserve.

The European data shows the Commission is marking down growth projections for the 12-country single currency union next year to 2.0 from a previous 2.9 per cent. Similarly, the OECD projects the eurozone will grow at 1.9 per cent next year, a sharp downward revision from 2.9 per cent it had forecast in its spring outlook.