Hopes that the savage depreciation of the pound would lead to a boom in exports and take the edge off the recession were dashed yesterday with the publication of another disappointing set of figures on UK trade.
Britain's trade deficit widened to its worst since records began in 1697. The Office for National Statistics reported that the UK's trade in goods deficit with the rest of the world widened from a downwardly revised £7.6bn in October to £8.3bn in November.
The deterioration was especially marked in falling exports to markets outside the EU, particularly America. Total exports excluding oil fell 5.2 per cent in the three months to November – the sharpest decline in two years – compared with a mere 0.7 per cent fall in imports, suggesting that even the sharp slowdown in spending doesn't seem to have blunted our appetite for imports. The non-EU trade deficit worsened from £4.4bn to £5.3bn.
Economists were surprised that the decline in sterling's external value – down more than a fifth over the past year and about 5 per cent in the last month, with sterling reaching near parity with the euro – had not done more to rebalance the UK economy. Hetal Mehta, a senior economic advisor to the Ernst & Young Item Club, said: "The impact of weaker sterling is being completely dwarfed by a collapse in world demand."
Trade still makes a significant contribution to the UK's GDP and the omens for growth are poor. "Yet more bad news," said Alan Clarke, of BNP Paribas. "Alongside the hard data on activity, the trade figures reinforce expectations that we are going to see an horrific contraction in GDP in the fourth quarter."
The National Institute for Economic and Social Research said last week that the British economy shrank by 1.5 per cent in the fourth quarter, putting the UK on track for a severe recession – its worst year since the Second World War, with a fall in output of close to 3 per cent, according to some.
That, in turn, would have devastating consequences for the public finances, unemployment and the property market. It will pile pressure on the authorities to take further action.
Collin Ellis, European economist at Daiwa Securities, said: "The slew of data press the case for further cuts in Bank rate, and a move to some form of quantitative easing. The Bank of England and Treasury must now act swiftly to agree what form that unconventional policy should take, while further government efforts to unblock business lending cannot come quickly enough."
German bailout: €50bn package announced
The German government admitted that it was on course to breach European Union spending limits yesterday after it made a policy U-turn and unveiled the country's biggest economic stimulus package since the war.
The €50bn (£45.4bn) worth of measures announced by Chancellor Angela Merkel's coalition government of conservatives and Social Democrats included €18bn for roads, schools, hospitals and other public services and €9bn in tax cuts for individuals and companies.
The package is designed to shield Germany from deepening recession as its exports continued to slump. Mrs Merkel said: "We will do everything to make sure that Germany not only overcomes the crisis, but that Germany emerges strengthened from it."
A month ago she insisted that spending one's way out of a crisis did not work, and argued that the German economy was strong enough to cope with the challenge.
Tony PatersonReuse content