Trade gap widens but trend confused
The global trade deficit widened in July to pounds 1,056m from pounds 868m in June, with the gap in trade with the European Union increasing from pounds 109m to pounds 184m. Consumer credit in August was weaker than had been expected but a rise in new mortgage approvals offered a ray of hope to the beleaguered housing market.
Despite the increase in the EU trade gap in July, the latest figures confirmed that the lion's share of the trade gap since May has been with countries outside the EU.
In the three months to July, the deficit with countries within the EU fell by pounds 800,000 compared with the previous three months. However, this improvement was outweighed by a deterioration of pounds 1.1bn in the trade gap with countries outside the EU. The net result was an increase in the overall deficit of pounds 300,000 to pounds 2.9bn.
In the three months to July, the underlying volume of exports - excluding oil and erratics - to the EU rose by 3 per cent while the volume of imports rose by 1 per cent. The picture with Germany and the Benelux countries was even brighter, with a 10 per cent surge in exports in the three months to July. By contrast, exports to countries outside the EU stagnated while imports surged by 5 per cent.
The reasons for this divergence in performance are not clear-cut. The weakness in the US market in the second quarter and continuing growth in the EU accounted for some of the differing fortunes of exporters. However, it is uncertain why imports should be rising so much more from countries outside the EU.
With the prospect of a recovery in the US market, "there is a very good chance of better performance in the global trade balance in the second half of the year", said Jonathan Loynes, economist at HSBC Markets. However, Simon Briscoe, UK economist at Nikko Europe, warned that "the market will be wary of the trade position while the overall trend remains adverse, and until the explanation becomes clearer".
The composition of the increase in imports suggests that it is going to fuel increased investment rather than consumption. A downturn in new consumer credit in August to pounds 535m from a revised figure of pounds 681m in July might seem to fit in with this picture. However, the fall is more likely to be a reaction to the strong summer sales, particularly in clothing and footwear.
Consumer credit has been buoyant in the past year despite the overall weakness of consumer spending.
This has led most analysts to interpret the strength of consumer credit as another dimension to the fiercely competitive conditions on the high street, with retailers vying for customers through credit deals as well as by cutting the price of goods.
Following the monthly rises in house prices in September, reported earlier in the week by the Nationwide and Halifax building societies, an increase in new mortgage commitments in August to their highest level since December last year suggested the housing market might be coming off the floor. New mortgage approvals tend to lead activity by about three months.
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