View from City Road: Time-bomb in the trade figures?

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The Independent Online
If the British economy is to spring any really nasty surprises this year, they are most likely to appear in the balance of payments figures.

The pounds 10.67bn current account deficit estimated for 1993 is already higher than the Treasury forecast in November's Budget. But an analysis by Bill Martin of UBS published today suggests that the true figure could be twice as high.

Mr Martin first argues that Britain's visible import bill for 1993 has been underestimated by pounds 4.5bn. This stems from problems with the Intrastat system for measuring trade, which relies on VAT returns instead of Customs declarations. Our estimates of Britain's imports are falling short of our trading partners' estimates of their exports to Britain. Our figures also show that our imports from the EU have risen less than imports from the rest of the world.

The second strand of the argument is that the balance of trade in invisibles - largely services and investment income - is a lot worse than the pounds 2.8bn surplus the Central Statistical Office unveiled yesterday. Mr Martin argues that the discrepancy between measures of trade flows and the capital flows to finance them points to an underestimate of Britain's overseas liabilities. So net investment income may be overstated.

The invisibles theory is likely to remain untested, but the CSO and Customs & Excise are investigating the visible trade figures. If they reach the same conclusion as Mr Martin, the financial markets may be forced into a re-evaluation of Britain's growth prospects which would make yesterday's falls in share prices seem tame.