Hope for UK economy as trade gap shrinks

The trade deficit narrowed slightly in March, adding to hopes that the economy could be beginning to strengthen.

Official figures today showed that the deficit on the trade in goods was £9.1 billion in the month, which was offset by a £5.9 billion in surplus in services, leaving a total deficit of £3.1 billion. This was down from a £3.4 billion trade gap in February.

The news helped to propel the FTSE 100 above 6600. Martin Beck of Capital Economics described the figures as “reasonably good” but added that the eurozone’s ongoing recession would probably continue to cause problems for the UK. “With key export markets in that region remaining very weak, significant export-led growth is likely to remain a distant prospect” he said.

The value of UK exports grew by 3.5 per cent on the month while the value of imports rose by 2.6 per cent. There was a surplus of trade with the US and Ireland, which was offset by deficits with Germany, the Netherlands and China.

In 2012, the UK current account deficit hit a record high of 3.7 per cent, or £58 billion, confounding hopes that a 20 per cent depreciation of sterling since the financial crisis would facilitate a rebalancing of the economy towards exports.

The ONS also said that output from the construction sector declined by 2.3 per cent in March, taking the level of activity to its lowest since late 1998. The ONS judges that the building sector was a drag on total output in the first quarter, when GDP grew by 0.3 per cent.