The Treasury hailed the rise in imports as evidence that the economy was starting to turn round. But longer-term trends show that import growth has been slowing over the past year, while exports have been subdued by weakness in the US and German economies.
The deficit on trade in 'visible' goods was pounds 1.13bn in July, compared with pounds 947m in the previous month, according to the Central Statistical Office. The City had expected the trade gap to narrow to about pounds 900m.
The deterioration was exacerbated by trade in oil - which showed its smallest surplus since August 1990 at pounds 19m - but flattered by unusually depressed aircraft imports. Excluding oil and erratic items, which also include precious stones and ships, the trade gap widened by pounds 172m to pounds 1.36bn. This was the second largest underlying trade deficit since August 1990.
Including a pounds 200m projection for the surplus in trade on 'invisible' goods, such as insurance and tourism, the estimated current account deficit grew by pounds 187m to pounds 934m. The cumulative current account deficit for the first seven months of the year is estimated at pounds 6.4bn, compared with the Treasury's Budget forecast of pounds 6.5bn for the year as a whole.
Exports were virtually unchanged on the month at pounds 8.8bn, while imports rose by pounds 226m to pounds 9.95bn. The volume of exports, excluding oil and erratics, was 2 per cent higher in July than a month earlier, while import volume rose by 2.4 per cent in the same period. Comparing the three months to July with the previous three months shows both import and export volumes increasing by 1 per cent, although import growth has been slowing in recent months.
The volume of imports of capital, intermediate and consumer goods were all higher in July than in the previous month.
'The three-month comparison suggests there has been no great post-election surge in import spending, which would have begun to feed through by now', said Ian Shepherdson, economist at Midland Montagu. 'Export growth has been depressed, but helped marginally by the weaker pound.'
Economic weakness in Britain's European markets has been reflected in slower growth in exports to the European Community. Exports to Eastern Europe and the former Soviet Union are rising quickly, but from a low base.