Trade gap widens as EC nations cut back spending: Britain's pounds 2bn July shortfall is biggest for three years

BRITAIN'S underlying trade deficit with the rest of the world widened to just under pounds 2bn in July, the largest monthly shortfall between imports and exports on this basis for more than three years.

Exports to other countries in the European Community fell to an 18-month low in July as the Continental recession dampened spending on British goods. This helped to widen the monthly trade gap with the rest of the EC to pounds 848m, the biggest for more than three years.

The trade picture with the EC is much more gloomy than with the rest of the world, both because EC economies are more depressed and because the devaluation of the pound has been greater against the dollar than against EC currencies. More than half Britain's trade is with the rest of the EC.

'This bears out the warnings from the CBI and other bodies that the recession on the Continent is hitting the UK's export-led recovery,' Michael Saunders, economist at Salomon Brothers, said.

The total visible trade gap was pounds 1.5bn in July, up by a quarter since June and the largest shortfall so far this year, according to the Central Statistical Office. The cumulative trade deficit in the seven months to July was pounds 8.7bn compared with pounds 7bn last year.

But the CSO warned that figures for EC trade - which have been calculated from surveys rather than customs declarations since the beginning of the year - could still be revised significantly.

Excluding oil and erratic items - ships, aircraft, precious stones and silver - imports rose to a record pounds 10.3bn in July while exports dropped to pounds 8.3bn, leaving a deficit of pounds 2bn. The deficit with the EC has risen since the end of the year, more than offsetting a narrowing in the non-EC deficit.

The CSO revised sharply upwards its estimate of the volume of imports from the EC so far this year, arguing that importers were trying to maintain volume by cutting profit margins on sales to British customers. The underlying volume of imports rose slightly from both EC and non-EC countries in the past three months. Exports fell 2 per cent to the EC but rose 2.5 per cent to the rest of the world.

City economists said the upward revisions to imports from the EC made the figures much more believable. 'The relatively good news on trade, partly a figment of the statistical imagination, has already begun to sour,' Robert Lind, economist at UBS, said.

(Graph omitted)