Scrappage boost fails to close growing trade gap

The UK's goods trade gap rose to a nine-month high of £7.1 billion in October despite an export boost from car scrappage schemes, official figures showed today.

The worse-than-expected data showed a 3.8% rise in exports over the month outstripped by a 4.3% increase in imports, the Office for National Statistics (ONS) said.

The ONS said car exports were up more than 23% compared with September, helped by support for the beleaguered car industry at home and abroad.

But the temporary boost provided by such 'cash for bangers' schemes will come to an end next year, prompting fears of an export slide with demand still weak.

A widening trade deficit is also a blow to the Bank of England's efforts to shift the economy away from its heavy reliance on imports, with record low interest rates weakening the pound to encourage exporters.

David Kern, chief economist with the British Chambers of Commerce, warned: "Imports continue to grow more rapidly than exports, and it is clear that the much-needed rebalancing of the UK economy is not happening."

The October figures showed the UK's deficit with European Union countries widening by £400 million to £3.6 billion, although the gap with other countries narrowed by £200 million.

The less volatile quarterly data also showed the goods deficit increasing by £900 million to £20.2 billion in the three months to October compared with the quarter to July.

Vicky Redwood of Capital Economics said: "We are still hopeful that the lower pound will eventually provide more of a boost, especially if the global recovery continues to pick up speed.

"But for now, there are few signs that the lower pound is giving the UK recovery much of a helping hand."