UK's trade deficit balloons to £3bn

Britain's trade gap ballooned in June to £3.0bn, its worst level this year, compared with £1.8bn in May and forecasts of a £2.2bn deficit.

Economists said the jump was caused by a sharp fall in exports, particularly to other European Union countries, that underlined the fragility of global demand. The weak trade figures are the latest in a run of poor economic data that has taken the pressure off increasing interest rates, with most economists now predicting the Bank of England will peg its base rate at 4.0 per cent for the rest of the year.

"The huge fall in exports fits with other evidence that the UK basically shut down in June, with manufacturing output down 5.3 per cent on the month, for example," said John Butler, an economist at HSBC bank.

The provisional figures from the Office for National Statistics show the gap in the trade of goods with members of the EU rose to £900m, up from £100m the previous month, while the deficit with non-EU countries grew at a slower rate to £2.2bn from £1.7bn.

In total, the export of goods dropped by 13 per cent to £14.9bn while total imports fell 5 per cent to £17.9bn.

Ross Walker, an economist at Royal Bank of Scotland, said: "The deterioration is on the exports side and reflects weak demand overseas. The other worrying thing is trade with the United States showed a marked deterioration over the month." He said the sharp fall in exports showed the weakness of global demand that "poses a serious threat to UK economic growth in the remainder of the year".

Exports to the US fell by 16 per cent, sliding back from a 15 per cent rise in May, while within the EU the main area of weakness was exports to France, which declined by 16 per cent. Others suggested the figures for June were skewed by the four-day golden jubilee bank holiday weekend. Mike Taylor, an economist at Merrill Lynch, said: "I wouldn't read too much into this particular set of data, but other data does show the outlook for the global economy and UK exports is not as bright as previously thought."

Richard Iley, an economist at ABN Amro, added: "The impact of the jubilee bank holidays and the fact that working days were lost in June will continue to distort the economic numbers for a good couple of months."

The balance of trade in services fell to an £800m surplus from a £1.0bn surplus in May, taking the overall deficit for trade in goods and services to £2.2bn compared with a revised £800m for the month earlier.