Exporters get foot in the door as trade gap narrows

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The Independent Online

The long-awaited export-led recovery shows signs of at last arriving. The UK's trade deficit has fallen to its lowest since June 2006 according to the latest figures from the Office for National Statistics. The figures – beating expectations – make an acceleration in the economic growth figures when they're released next Friday more likely.

The trade in goods deficit narrowed from £8bn to £6.2bn, while the overall trade deficit – including services – shrank from £3.9bn to £2.1bn. The 8.3 per cent monthly rise in exported goods volumes in February fully reversed its disturbing drop at the start of the year – which does now appear to have been a product of the poor weather and goods not arriving at ports for export.

The failure of the trade deficit to respond to the 25 per cent depreciation in sterling since the beginning of 2007 and the bounce back in world trade volumes has puzzled and disappointed policy-makers for some time.

The Bank of England has previously suggested that at least part of the answer may be that exporters have chosen to maintain their foreign currency prices and take the benefit of the weak pound through higher profit margins rather than increased volumes. The Chancellor of the Exchequer, Alistair Darling, echoed that view last month, when he told the Treasury Select Committee that he thought British exporters needed to "get their foot in the door" to make the most of the export opportunities.

Excluding oil and erratic items, the seasonally adjusted volume of exports was 6.3 per cent higher, but the volume of imports was 1.4 per cent lower in February, compared with January. Export prices of goods rose by 0.5 per cent and import prices of goods rose by 0.3 per cent, compared with January.

Vicky Redwood Senior UK Economist at Capital Economics said: "Finally some good news on UK trade. The improvement fits with the recent rises in survey measures of export orders.

"Nonetheless, exporters may struggle to capitalise further on the lower pound if the recovery in their main export market, the eurozone, continues to flag. What's more, the latest news on the consumer side of the economy was more mixed, with a strong retail sales survey offset by a rather more downbeat housing survey."

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