Non-EU trade gap lowest for nine months

Click to follow
The Independent Online
BRITAIN'S underlying trade deficit with countries outside the European Union fell to a nine- month low in July, but analysts doubt the improvement can last as recovery remains robust in Britain but slows in the US.

The pound and the dollar ended on a weaker note yesterday following the Bundesbank's decision to leave key interest rates unchanged and amid renewed fears that Washington might resume talking the dollar down against the yen.

The shortfall between imports and exports of visible goods rose from pounds 392m in June to pounds 418m in July, but the deterioration was more than explained by a swing into the red on trade in oil, according to figures from the Central Statistical Office yesterday.

Excluding oil and erratic items, the deficit fell from pounds 451m to pounds 422m, with a pounds 54m rise in exports outstripping a pounds 25m rise in imports. July saw a sharp fall in export volumes and a big rise in import volumes, offset by changes in prices. Export prices rose nearly 5 per cent in the month, while the more competitive markets at home saw import prices drop 0.7 per cent.

But in the last three months export volumes have risen while import volumes have fallen by about 5 per cent. Export prices have fallen relative to import prices, leaving the deficit on a slowly improving trend.

Adrian Cooper, economist at James Capel, said the fall in import volume was 'difficult to square with recent developments in UK domestic demand, and we remain concerned about the quality of these data'. He said figures published by Britain's non-EU trade partners did not identify a corresponding rise in sterling export prices to match the rise in UK import prices found by the CSO.

The US currency retreated 0.69 pfennigs to DM1.5387 and was half-a-yen lower at Y98.48. Over the week, the dollar has lost almost two cents and about 1.5 yen.

Sterling also finished lower, dropping briefly below two Swiss francs for the first time - a movement that may signal further softening next week. Sterling closed slightly down at DM2.3839 and was 1.79 pfennigs lower on the week. Against a basket of currencies, the pound has fallen 0.6 to 78.5 per cent of its 1985 value over the week.

Johann Wilhelm Gaddum, the Bundesbank vice-president, said the securities repurchase rate was left at 4.85 per cent to dampen hopes of a fall in key rates.