Britain's goods trade deficit with the rest of the world hit a record high in September, driven by higher imports of cars and other consumer goods.
In the 1960s and 1970s such a development would have seen the pound spiralling down on the foreign exchanges, but yesterday sterling was, if anything, in robust form, blipping down slightly on the trade news before heading for a fourth week of gains against the dollar, buoyed by speculation that the Bank of England will keep interest rates on hold this year, while the Federal Reserve lowers them.
Still, the trade figures couldn't be described as good news. The goods trade gap grew to £7.7bn from £6.9bn in August, higher than expectations. The momentum of growth in the economy was a factor feeding demand for imports, but slower growth in the rest of the world played an unhelpful part. Paul Davies at Capital Economics said: "We think a global slowdown will mean that net trade plays a major role in slowing the UK economy over the coming quarter."
The weak dollar is making its presence felt on both sides o f the Atlantic. Thus yesterday America's trade deficit narrowed to its lowest level in more than two years, with record exports. However much of the weight of this adjustment is being borne by the nations with fully floating exchange rates, such as those in the eurozone, the UK and Canada. China – America's biggest trade partner and the root cause of its trade problems – has shown extreme reluctance to revalue the renminbi.
The strength of the euro – relative to sterling as well as the dollar – was a factor in a downgrade in the European Commission's forecast for EU economic growth. It said that growth in the 27-nation community will slow to 2.4 per cent in both 2008 and 2009, from 2.9 per cent in 2007. Oil prices and the turmoil in financial markets were other factors dragging growth lower, Brussels said.Reuse content