The UK's trade gap looks set to drag on the opening quarter of this year after a “disappointingly soft” export performance underlined the IMF’s warnings of an unbalanced recovery, official figures showed today.
The UK’s goods trade gap with the rest of the world narrowed to £9.1 billion in February — but exports are down to their lowest level since November 2010.
The gap is only shrinking because imports are falling even more quickly, thanks to lower imports of “erratic” but expensive goods such as aircraft and aircraft parts.
The IMF warned yesterday in its World Economic Outlook that the recovery “has been unbalanced with business investment and exports still disappointing” despite the strongest growth for any advanced economy this year. The UK’s overall deficit — including the nation’s services surplus — narrowed slightly to £2.1 billion but the Office for National Statistics has put this down to one-off factors.
Capital Economics’ UK economist Samuel Tombs said: “ Even in the optimistic case that the overall deficit holds steady at February’s level in March, it would still total £6.3 billion in the first quarter, about £500 million bigger than in the fourth quarter.
Accordingly, it seems likely that net trade made a negative contribution to GDP growth in the first quarter. As long as demand in the UK’s main continental export markets remains weak, the UK’s economic recovery is likely to depend solely on domestic demand.”
Detailed figures showed worrying weakness in exports to the eurozone in February, down 4.1% month-on-month. Taken over the past three months they fell 2.2% compared with the quarter to November. “Looking through the distortions, the export performance looks disappointingly soft,” said IHS Global Insight economist Howard Archer.
Underlying export volumes are up 1.9% in the past year but imports rose almost twice as fast, at 3.7%. Berenberg economist Rob Wood expects net trade to drag on growth over the next two years, with a large current account deficit.