UK's trade deficit jumps to £7.1bn

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Britain's trade gap with the rest of the world has increased to its widest for nearly a year, wrong- footing economists in the process.

Figures from the Office for National Statistics showed that the deficit, or the amount by which imports outstrip exports, hit £7.1bn in July, £600m more than the previous month.

The City had been expecting a figure closer to £6.4bn. With the surplus on services remaining steady at £2.6bn, the country's overall trade gap in goods and services stood at £4.4bn.

That compares to the previous month's figure of £3.9bn, which was itself revised upwards.

The figures caused sterling to fall against the dollar and the euro in early trading following their publication, although traders described this as a knee-jerk reaction.

The increase in the trade gap was almost entirely driven by a goods deficit from countries outside the European Union, which stood at £4.5bn, compared with a forecast of £3.5bn. Britain's oil deficit with the rest of the world also increased to £270m in July.

A calculation error the previous month also meant that June's surplus of £257m was revised sharply downwards to show a deficit of £14m. The ONS blamed the upward revision on the double counting of a £300m submission from an oil trader. It warned that changing patterns of VAT fraud had served to make its initial estimates less reliable than previously.

Economists see little prospect of the country's trade gap declining significantly, with sterling remaining strong against global currencies, making imports cheap and exports uncompetitive on world markets.

Britain has, in fact, been in deficit with the rest of the world for the best part of 10 years.

In July total exports of goods in July rose by 2.5 per cent to £19.2bn, but total imports increased by 4 per cent to £26.3bn.

Import prices excluding oil and erratics slipped by 0.7 per cent in July, the biggest fall since December.