Trade deficit explodes as economy heads for slowdown

The British economy will slow sharply this autumn, though escaping an outright contraction and a formal "double dip" recession, the Organisation for Economic Co-operation and Development has predicted.

Ominously, the OECD's caution about the prospects was confirmed by the release of the worst ever set of UK trade figures by the Office for National Statistics yesterday. The welter of gloomy economic news left the Bank of England's Monetary Policy Committee unmoved, however: as was widely expected, it decided to keep interest rates at 0.5 per cent while the quantitative easing programme, which injected money directly into the economy, stays on hold.

In its latest assessment, the OECD echoes upbeat official figures for the second quarter of this year, putting growth at about 1.2 per cent (4.9 per cent annualised) between April and June. But the international body sees growth slowing to approaching half that level in this quarter – just 0.7 per cent or so (2.7 per cent annualised), a downgrade. In the last three months of this year it predicts growth of 0.4 per cent (1.5 per cent annualised). After that it sees the recovery accelerating again.

The fiscal squeeze, which will be outlined in more detail in the spending statement due on 20 October, an erosion in confidence and a disappointing trade performance all seem set to slow growth as 2011 approaches.

Of more immediate concern is the exploding trade deficit. Ministers of both parties and the Bank of England have placed great store by the 25 per cent depreciation in sterling since 2007, and its ability to "rebalance" the economy away from domestic consumption and towards exports. Instead, and despite some hopeful signs to the contrary earlier this year, the trade deficit seems to have taken a decisive turn for the worse.

The estimated £13.2bn deficit in the three months to July is the largest on record, while July's deficit in goods trade alone, at £8.7bn, was the largest single month's deficit on official record.

Analysts said that there was some evidence that British exporters had taken the benefit of the lower pound to rebuild profit margins, maintaining the foreign price of their goods to boost their sterling returns.

Malcolm Barr, an economist at JP Morgan, said: "The size of the trade deficit in nominal terms does not reflect sudden swings in oil or erratic items, nor does it appear to owe much to the rise in global food prices.

"It is true that levels of both imports and exports are showing a decent bounce as one would expect given the sharp falls seen during the recession. Gains in the performance on exports relative to imports thanks to sterling's decline will be a long time coming, and will probably be difficult to identify amongst other influences."

But the Engineering Employers' Federation, representing many of the nation's leading exporters, suggested that sluggish growth in key markets is a more potent factor. "Outside the EU the largest fall in exports went to the US, where exports fell by 6.4 per cent over the month. It is likely that the still shaky economic outlook is dampening US consumers' and businesses' demands for UK goods. Conversely, UK exports to high-growth China and South Korea have risen notably," it said.

"A similar picture is notable in Europe, where the largest falls in exports were to Spain and Italy, in both cases falling by over 10 per cent. This suggests, then, that weaknesses in the economies of export partners might be behind this month's disappointing trade statistics."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test
Tour de France 2015: Twins Simon and Adam Yates have a mountain to climb during Tour of duty

Twins have a mountain to climb during Tour of duty

Yates brothers will target the steepest sections in bid to win a stage in France
John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy