Fears of a widening trade gap dent hopes of recovery

A worsening trade deficit is set to dampen hopes of an export-led recovery and end the recent run of upbeat news on the UK economy, City experts fear.

Figures this week are expected to reveal the nation's trade gap with the rest of the world widening to £8.3bn in November – the worst since August and undoing a surprise improvement in October.

October's unexpected surge in exports to a record £26.5bn is unlikely to be sustained amid signs of weakening demand in the eurozone – the UK's single biggest export market – which is being tipped into recession by sovereign debt fears. The bloc saw rising unemployment for the seventh month in a row in November, as well as a sudden 0.8 per cent plunge in retail sales.

The likely trade gloom comes despite evidence of a healthier December for the UK in purchasing managers' surveys, with faster growth from services and construction sectors. The pound also surged to a 16-month high against the euro last week, damaging the prospects of UK exporters.

Capital Economics' chief economist, Vicky Redwood, said: "The survey measures of export orders are still pointing to falls in exports and eurozone demand is weakening. We expect the trade in goods deficit to have widened from £7.6bn to about £9bn."

The Bank of England's Monetary Policy Committee is expected to hold fire on further quantitative easing in its first meeting of the year. Most experts expect the Bank to move again in February when its current £75bn programme comes to an end.

David Kern, the chief economist at the British Chambers of Commerce, called on the MPC not to wait, and pump an extra £50bn into the economy. He said: "An announcement next week would boost confidence and ease concerns around the eurozone."

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