UK goods trade deficit unexpectedly widens

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The Independent Online

Britain's goods trade deficit with the rest of the world unexpectedly widened in January to its biggest since August 2008, raising further concerns about the strength of the country's broader economic recovery.

The Office for National Statistics said on Tuesday that after the sharpest drop in exports in over three years, Britain's goods trade gap widened to 7.987 billion pounds ($11.97 billion) from 7.010 billion in December, and well above the 7 billion forecast by economists.

The figures are likely to further raise policymakers' concern that the sharp fall in sterling (=GBP) (EURGBP=) (GBP=) over the past two years has not led to the expected boost in exports - a point reiterated by Bank of England policymaker Kate Barker on Monday.

"It's a pretty disappointing number," said Alan Clarke, economist at BNP Paribas. "Trade is one area where people have been expecting an improvement but it doesn't seem to be happening. This is bad news for first quarter gross domestic product."

Gilt futures and sterling were little moved after the data.

The deterioration in the global trade balance was a result of a 6.9 percent fall in exports, the biggest fall since July 2006. Imports were down just 1.6 percent.

The goods trade gap with non-EU countries also widened unexpectedly to 4.834 billion pounds from 3.428 billion, the biggest deficit since January 2009.

Exports to non-EU countries suffered their sharpest fall since January 2009, dropping by 12.5 percent on the month, while imports rose by 1.6 percent.

January was an unusually icy month in Britain, which may have disrupted the transport of goods for export to ports, though the ONS said that Tuesday's data in itself did not provide firm evidence of that.

The ONS said there was a broadbased fall in exports, with chemicals exports losing their recent strength. Car imports fell by 215 million pounds, the biggest drop since November 2008, after rising for most of the previous six months due to a government scrappage incentive for old cars.

The weak trade figures contrast with business surveys, which in recent months have shown a strong increase in export orders, giving hope that an improvement in the trade balance may yet appear.

Policymakers have identified net exports as an important driver for future UK growth, as consumer and government spending are expected to remain muted due to high debt levels in both the household and public sector.

"There is clearly a big question mark over whether any improvement in net trade will come through quickly or strongly enough to offset the weakness in domestic demand," said Vicky Redwood, economist at Capital Economics.