Trade deficit hits new record

The UK's annual trade deficit jumped to a new record today as exporters continued to find demand affected by the strong pound

Worse-than-expected figures for December meant the deficit on goods and services was £55.8 billion in 2006, against £44.6 billion a year earlier. The Office for National Statistics (ONS) said this was the highest figure since records began in 1697.

The UK's deficit on trade in goods in December was estimated at £7.1 billion, up from £6.9 billion in November, and including a 6% drop in exports to countries outside the European Union.

The recovery of the European economy meant exports to the region were up 2%, but at the same time imports from the continent increased 4%.

Economist Richard Snook, of the Centre for Economics and Business Research, said firms had been hindered by the strength of sterling, which remained close to 52-week highs against both the dollar and the euro.

He added: "Other factors that have contributed to the deterioration of the trade balance are the demand of consumers for cheap imported goods and the high price of gas and other commodities.

"These trends are unlikely to reverse significantly over the next year and the falling production of North Sea oil leaves the UK increasingly dependent on imported oil."

Economists added that today's trade figures were still being heavily distorted by the impact of VAT fraud.

Howard Archer, chief UK and European economist at Global Insight, said: "Taken at face value, the trade data for December are once again disappointing.

"On the positive side, domestic demand currently seems to be holding up well in the eurozone and fears of a sharp US slowdown have eased. However, UK exporters are being hampered by a very strong pound."

Exports rose by 15% to £243.9 billion last year, but the increase was almost entirely due to trade with the EU, where the economy has brightened in recent months. Imports increased 17% to £328.2 billion, the ONS added.

The resulting deficit of £84.3 billion was reduced to £55.8 billion overall because of a record surplus of £28.5 billion in the services sector.