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."

PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
voices
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
Arts and Entertainment
tvReview: 'Time Heist' sees a darker side to Peter Capaldi's Doctor
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
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

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam