Exporters praised as trade deficit narrows

A STRONG performance by British exporters in the face of the rise in sterling helped deliver a surprise cut in the UK's trade deficit with the rest of the world.

A STRONG performance by British exporters in the face of the rise in sterling helped deliver a surprise cut in the UK's trade deficit with the rest of the world.

The deficit narrowed to £1.9bn in August from £2.2bn, beating forecasts of £2.1bn, according to figures published yesterday.

The Government applauded manufacturers for the "significant upturn". Richard Caborn, the Trade Minister, said: "Conditions have been tough for exporters in recent times, yet the figures show how strong and successful British firms are becoming in world markets."

Exports rose 5 per cent to £14.5bn with imports growing 2.5 per cent to £16.4bn. The improvement was led by trade with non-European Union countries, where exports surged 8.5 per cent.

The trade gap with non-EU nations narrowed to £1.5bn from £2.0bn in July. The optimistic outlook was supported by preliminary figures for September showing the non-EU deficit narrowed further to £1.2bn.

Darshini David, an economist at HSBC, said the improvement was due to a strong export performance. "This is likely to reflect exporters' attempts to cope with the strong pound, with 150,000 manufacturing jobs disappearing in the last three months in a bid to trim costs and boost competitiveness," she said.

Sterling hit $1.6793 against the dollar on Friday, its highest level this year, on growing expectations of another rate rise next month. Richard Iley, of ABN Amro, said: "These data reinforce our view that rates will be pushed up again in November by a pre-emptive Monetary Policy Committee."

Other analysts highlighted the impact of the rising oil price. Stripping out oil and other erratics, the deficit was almost unchanged at £2.1bn.

"We still have got a very large deficit and that is a problem for the UK economy," said James McKay of National Australia Bank.

Meanwhile, the euro rose after Otmar Issing, the European Central Bank's chief economist, hinted that interest rates would have to rise soon. The single currency rose half a cent to $1.0689. Mr Issing said that the threat to inflation in the eurozone had increased, adding: "We see now risk slowly changing from the downside to the upside."

Speculation is growing rates may be hiked as soon as next week. Money supply figures tomorrow are expected to show a rise to 5.7 per cent from 5.6 per cent - further away from the ECB's 4.5 per cent reference value. ECB board member Eugenio Domingo Solans said the money data would be key to the Bank's monetary policy.