Recovery hopes hit by export data

The UK's fragile economic recovery suffered a jolt today after figures revealed a sharp fall in exports to countries outside Europe.

In a sign of more pressure on the UK's first quarter GDP, the trade deficit on goods and services rose to £3.4 billion in February, up from £2.5 billion the previous month and bigger than the £2 billion expected by the City.

Despite the eurozone debt crisis, the trade deficit in goods with countries in the EU narrowed but there was a worrying 9% fall in exports to other countries, with fewer cars being sent to the US, Russia and China.

To add to the gloom, the Office for National Statistics (ONS) said the deficit in January was bigger than previously thought, dealing a blow to the Government's hopes for an export-led recovery.

Economists warned the figures could drag on the UK's economic growth in the first quarter of 2012.

The UK's economy shrank by 0.3% in the final quarter of 2011 and despite upbeat industry surveys in recent weeks fears remain that the economy contracted again in the first quarter of 2012.

That would mean the UK is back in recession, defined as two quarters in a row of contraction.

Alan Clarke, an economist at Scotiabank, said: "This doesn't bode too well for the preliminary estimate of first quarter GDP in around two weeks' time.

"We expect growth to be in positive territory, but we are no longer as optimistic as we once were, having previously looked for near 0.5% quarter-on-quarter growth."

The disappointing figures come as Prime Minister David Cameron visits Asia on a mission to drum up more trade with booming economies such as Indonesia.

The UK's goods trade deficit increased to £8.8 billion in February from £7.9 billion in January. The services surplus was £5.4 billion - the same as in January.

There was a rise in exports to the EU, with countries such as the Netherlands and France buying more UK oil and chemicals.

But Vicky Redwood, chief economist at Capital Economics, said the narrowing in the trade deficit with the EU was surprising and added that the weak performance of eurozone economies means that "export growth to Europe is likely to weaken soon too".

The overall figures were "pretty disappointing", she concluded.

However, Lee Hopley, chief economist at manufacturers' organisation EEF, believes UK firms will successfully secure more orders overseas.

She said: "Whilst the drop in exports in February was driven by weakness in non-EU demand, this contrasts with the underlying trend of strong growth to these markets over the past two years."

The prices of imported goods rose 0.7% between January and February, driven by rising oil prices.

This highlighted continued inflationary pressures and cast doubt on whether inflation will fall back to its target of 2% in coming months, as the Bank of England forecasts.

PA