Record deficit deepens gloom

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The Independent Online
DIANE COYLE

Economics Correspondent

The final official figures before next Tuesday's Budget brought more grim news yesterday on the state of the economy. Britain's trade deficit with countries outside the European Union rose to a record pounds 1.2bn last month. And an encouraging rise in investment in manufacturing industry in the latest quarter was eclipsed by the biggest jump in stock levels for nearly 20 years.

Ian Lang, President of the Board of Trade, conceded: "The trade figures are a bit disappointing." His Labour counterpart, Margaret Beckett, said: "The figures highlight the weakness of the so-called recovery."

The trend in the non-EU deficit is widening, government statisticians said yesterday. It has worsened by over pounds 700m in the latest three months - although two-thirds of this was due to imports of silver ingots running at 10 times normal level. Even so, the underlying trade deficit, excluding oil and erratic items like precious metals, jumped by pounds 370m to pounds 951m in October.

A surge in imports, particularly manufactured goods, to a record pounds 6.5bn last month came as a shock given recent evidence that the economy is slowing. The quarter also saw the biggest increase in stocks since late 1976. Inventory levels in manufacturing and wholesaling jumped, although retailers' and motor traders' stocks fell.

David Walton, an economist at Goldman Sachs, said: "The rise in stocks is worrying. Demand is stagnant and we will probably have another few quarters of very weak growth."

However, Kevin Darlington, at brokers Hoare Govett, said: "The import surge suggests the economy is not as moribund as people believe." Manufacturing investment up 12.3 per cent in the year to the third quarter - higher than in any quarter since the beginning of 1991 - provided evidence for this view.

Exports fell 7 per cent to pounds 5.3bn in October, driven by lower sales to North America and the Far East. A revival in exports to North America in September was reversed, falling by pounds 228m to pounds 1.7bn, although they were 8 per cent higher in the latest three months than in the previous three. Imports from North America rose 14.2 per cent in the three months to October. The same pattern held for trade with Asia. The pound ignored the gloomy trade figures. Against a range of other currencies it recovered to 82.7 from 82.2, and it rose more than a pfennig to close at DM2.1940.

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