Surprise fall in UK trade gap caps feelgood week

 

The UK's goods trade deficit tumbled by £1 billion to £8.2 billion in April, making it £600 million smaller than expected and the lowest since January. Including the services surplus, the overall deficit shrank from £3.2 billion to £2 billion.

Net trade knocked 0.1 percentage points off the wider economy in the first three months of the year but an improved picture means trade is more likely to buoy growth than drag it down in the current quarter - putting the UK on course for two successive quarters of growth since 2011.

It comes as a week of good news for Chancellor George Osborne, pictured below, has fuelled recovery hopes, including the fastest expansion in more than a year for services and manufacturing firms in May and a return to growth for Britain's builders.

Car sales have returned to pre-recession peaks. The High Street also shrugged off poor weather last month to grow sales - albeit with the help of discounting - according to the British Retail Consortium.

The figures showed the deficit being closed by imports falling 2.7 per cent in April, a much faster rate than the 1.3 per cent drop in exports seen over the month. This was due to the sharp narrowing of the trade gap with European Union countries.

Nida Ali, economic adviser to the Ernst & Young ITEM Club, said the figures represented an "encouraging start to the second quarter". She added: "With export volumes well above the Q1 average and import volumes somewhat below, net trade is on course to contribute positively to growth in Q2."

Exports to China now averaging £1 billion a month for the first time, the figures showed, as the UK seeks to lessen its trading dependence on struggling European markets. Goods exports to the EU, much of which is stuck in recession, were their lowest in the quarter to April since the three months to June 2012.

Royal Bank of Scotland economist Ross Walker warned: "If you look at import and export numbers on an underlying basis, much of the improvement is that imports are falling, not that exports are rising. There's only limited evidence at best of a rebalancing on the trade side."

Question marks also remain over the health of the eurozone after the Bundesbank today cut its growth forecasts for this year and 2014. Ali said: "Weak eurozone demand is likely to continue to restrain exports. And there is a risk that faltering growth in emerging nations could constrain companies' efforts to rebalance towards these markets."

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