Exports plunge heaps pressure on pound

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Dismal trade figures and fresh doubts over the UK's sovereign credit rating heaped more pressure on the pound today.

Official figures showed UK exports took their biggest plunge in more than three years during January, while ratings agency Fitch called for firmer action to restore the UK's dire public finances.

The pound, which had clawed back some ground lost last week amid market fears of a hung parliament, sank back below 1.50 US dollars and 1.10 euros at one point as markets sold off the currency.

The trade figures showed the worst monthly slump in exports since July 2006 - a £1.4 billion or 6.9 per cent fall - thwarting hopes of a weak pound aiding a rebalancing of the struggling UK economy away from imports.

Statisticians have no data yet on the impact of the cold snap, although experts said snow-bound manufacturers were likely to have struggled to get their goods to ports.

The export decline far outstripped a 1.6 per cent fall in imports - causing the UK's goods trade gap with the rest of the world to widen from £7 billion to £8 billion in January, the biggest since August 2008.

"There is still no sign of the UK transforming into an export-led economy any time soon," Daiwa Capital Markets Europe economist Colin Ellis said.

Fitch added to the economic gloom at a conference in London which named the UK, Spain and France as the three triple-A rated countries in most urgent need of strong action on the public finances.

The agency said the UK's sovereign credit profile had "deteriorated" due to its exposure to the financial crisis, with the most rapid rise in debt of any AAA-rated country.

It also labelled official growth forecasts "optimistic" and said the economy was "vulnerable to adverse shocks".

Liberal Democrat Treasury spokesman Vince Cable called the trade figures "deeply alarming" as British exporters failed to benefit from sterling's fall over the past year.

Shadow business secretary Ken Clarke added: "We need to build a new economic model based on saving, investment and exports instead of the debt-fuelled model of the last decade."

Experts warned the poor trade figures would continue to act as a drag on recovery during the first quarter of 2010, having knocked off 0.2 percentage points from the UK's 0.3 per cent growth in the final three months of 2009.

"In terms of GDP during 2010, it is increasingly looking like net trade may not provide that much impetus to growth after all," Mr Ellis added.