Pound fails to help exports as demand for UK goods collapses
Exports slump even more than imports to leave trade deficit yawning alarmingly
The much-vaunted boost to UK trade from the devalued pound has yet to materialise, according to the latest official figures. Despite a 25 per cent slide in the value of sterling since mid-2007, the UK's trade deficit widened by more than expected in January as exports to non-European Union countries fell sharply. The deficit in goods and services grew to £3.6bn, from a shortfall of £3.2bn in December. The deficit in goods, at £7.7bn, is up by £500m on the previous month.
The depressed trade figures echo similar performances in Germany and Japan, suggesting that the global decline in demand and trade – down about 10 per cent in recent months, according to the IMF – is dragging down every major trading nation.
The drift to protectionism evident in some advanced and emerging eco-nomies also promises to slow trade. The Chancellor, Alistair Darling, warned yesterday: "In our globalised econ-omy, a pound spent in Beijing or Bremen is a job saved in Bradford or Birmingham. This is what the G20 presidency is about."
Mr Darling called again for an increase in the IMF's funds to help poorer nations: "We can start to build that consensus by recognising that our common interest need not contradict a country's self-interest – in fact, it can complement it. And it's all part of rebuilding confidence."
Confidence in the UK's capacity to export will not be bolstered by the latest data, however. Exports of traded goods fell by 4 per cent in January, compared with December, the fourth successive decline. Traded goods exports were down by 9.3 per cent on a quarterly basis.
The EU provided a ready market for cheaper British goods: exports to EU countries rose by 5.9 per cent in January alone. But this was outweighed by a 15.9 per cent plunge in exports to non-EU countries. Exports to the US fell by 8.5 per cent, or £1bn, in January. The deficit with the EU narrowed markedly – to £2bn in January, down from £2.9bn in December. Meanwhile, imports of traded goods fell by 1 per cent on the month, marking a sixth successive decline and consistent with markedly contracting domestic demand.
Howard Archer, UK economist at Global Insight, said: "While sterling's sharp depreciation has yet to fully feed through to boost exports, it seems highly likely that they will continue to be held back over the coming months by contracting demand in key markets. February's survey evidence from both the CBI and the manufacturing purchasing managers [index] indicated sharply falling export orders."
However, other economists painted a more optimistic picture, a perverse result of the UK's relatively poor trading performance. Colin Ellis of Daiwa Securities explained: "If exports and imports both fell by the same proportion over the year as a whole – say 10 per cent – the trade deficit in the UK would shrink, providing some support to GDP. Yet if exactly the same thing happened in Germany or Japan, trade would detract significantly from GDP, because they were running surpluses prior to the downturn. That is a key reason why the decline in UK GDP this year may not be as large as in some other industrialised countries."
The ONS noted an especially disappointing UK export performance in capital goods, and that imports of consumer goods, apart from cars, had continued to rise.
The dangers to international trade were also highlighted by the US Treasury Secretary, Timothy Geithner, yesterday. Flanked by President Barack Obama and speaking before the meeting of G20 finance ministers to be hosted by Mr Darling at the weekend, Mr Geithner said: "Until just a few months ago, exports were actually one of the areas where we were still getting some lift in the economy. That has now gone away. It's now banished because purchasing power in many of these other countries, as well as credit in these other countries, has contracted. So we've got to spend some time thinking about how we're going to strengthen them." The US Congress recently insisted on "Buy American" clauses in President Obama's $787bn (£567bn) economic stimulus package. The President added that he is "optimistic about the pros-pects" for the G20 summit, which begins at 10 Downing Street on 2 April.
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