Surge in exports gives a trade balance boost to Government

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Surging exports helped trim Britain's trade deficit in July, suggesting that another piece of the economic jigsaw is looking favourable for the Government.

"Contrary to popular perception, export volumes are picking up," said Kevin Darlington, an economist at City brokers Hoare Govett.

Stronger consumer spending had not led to the expected increase in imports, he added. So far, faster spending growth has fuelled neither inflation nor imports.

The improvement in exports reported in yesterday's official figures provides the first confirmation of recent industry surveys indicating better export orders.

The latest CBI survey indicated a sharp improvement in manufacturers' optimism about future exports, despite the apparent weakness of key markets in Europe.

The gap between exports of goods to and imports from non-EU countries halved in July, falling to pounds 506m. This was the smallest deficit since May 1995. The underlying balance, excluding oil and erratic items such as aircraft and precious stones, improved equally sharply, falling from pounds 794m to pounds 410m.

The shortfall in trade in goods with the rest of the world was almost unchanged at pounds 1.1bn in June. It had been expected to widen because previously published figures showed a sharp rise in the deficit with non-EU countries that month.

The overall deficit for the first half of the year was pounds 7.1bn, not too far out of line with the Treasury's recent forecast of pounds 13.5bn for 1996 as a whole. The Office for National Statistics said the trend remained flat.

The jump in exports to non-EU countries in July, at 8.7 per cent, was the highest since mid-1993. North America and European countries outside the EU accounted for most of the improvement during the month.

The less volatile figure for the three months to June showed a 5 per cent increase in the underlying value of exports compared with a 1 per cent increase in import values.

The volume trends were equally favourable, with exports up 3.5 per cent in the three months to July compared with a 0.5 per cent increase in imports.

The overhang of excess stocks in industry has helped to subdue import growth, offsetting the normal impact of higher consumer spending on trade.

Jonathan Loynes, an economist at HSBC Markets, said: "These figures should lay to rest any immediate concerns that the recent pick-up in domestic demand - and in particular consumer activity - will have an adverse impact on the trade balance."

A spokesman for the Treasury said: "The figures continue to demonstrate strong export growth."

However, Labour focused on the small increase in the whole world trade deficit in June.

Shadow Treasury chief secretary Alistair Darling said: "This worsening trade gap confirms the underlying imbalance in the UK economy.

"Britain has too small a manufacturing base to sustain growth without a persistent trade deficit."