The trade deficit shot up in September, according to the Office for National Statistics, dealing a blow to the Government's hopes of presiding over an export-driven recovery.
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The UK's deficit in goods and services in September was £3.9bn, up from £2.7bn in August. The volume of goods exports fell by 1.6 per cent and the volume of imports rose by 1.6 per cent. The deficit on the trade in goods reached £9.8bn, the highest figure on record. The UK's long-standing surplus on trade in services remained static at £5.9bn. Exports to our major EU trading partners fell in value by £600m in the month, while imports from the Continent rose by £1.6bn.
Analysts interpreted the figures as an economic distress signal. Nida Ali, an economic adviser to the Ernst and Young Item Club said: "These figures are every bit as bad as we feared they might be. With exports to EU countries down by about 3 per cent, adverse developments in the eurozone are clearly taking their toll on export growth. Given the numerous headwinds, the trade position is unlikely to recover in the months ahead".
Chris Williamson, of the financial data firm Markit, said: "Further export losses look likely in coming months, with survey data suggesting the rate of decline could accelerate substantially. With domestic demand hit by deficit-fighting austerity measures and export sales falling, it is hard to see what will drive economic growth in coming months, raising the risk of a double-dip recession."
Rachel Reeves, the Labour Party's shadow Chief Secretary to the Treasury, argued that yesterday's disappointing figures were primarily a consequence of domestic economic weakness, rather than an external shock from the eurozone sovereign debt crisis. She said: "Exports to the eurozone in the last quarter are 17 per cent higher than the same period a year ago. Our economy has now flatlined for a year because domestic demand has fallen and confidence has slumped as spending cuts and tax rises that go too far and too fast have kicked in".
There was further bad news for the Chancellor in the ONS figures, with the estimate of the trade deficit for August revised up from £1.8bn. This turned an apparent narrowing of the trade deficit into a widening. This change also raises the possibility that the GDP figures for the third quarter of 2011, which the ONS said last week showed an 0.5 per cent expansion, might be revised down.
However, economic analysts cautioned against reading to much into a single month's figures. Howard Archer of IHS Global Insight said: "It should be borne in mind that trade data is notoriously volatile and can be revised substantially so a single month's figures need to be treated with caution. The jump in UK imports in September looks particularly strange given the apparent softness of domestic demand."
The UK's weak trade figures made for a contrast with the latest numbers from Germany. Figures released yesterday showed that record exports pushed the German trade surplus to a three-year high in September.Reuse content