Britain's trade deficit hits a 300-year high

Britain racked up its largest trade deficit for three centuries last year as a strong rise in exports to the US and Asia failed to offset a rise in imports and a slump in demand from the Continent.

Britain racked up its largest trade deficit for three centuries last year as a strong rise in exports to the US and Asia failed to offset a rise in imports and a slump in demand from the Continent.

UK consumers and business imported £35.8bn more goods and services than they exported in 2003, the Office for National Statistics said. The surplus on services slumped by £5bn to £10.6bn - a seven-year low - while the goods shortfall came within a whisker of 2002's £46.6bn, the largest recorded since 1697.

The deficits, which are also at their highest level as a share of GDP, are set to get larger. The ONS said it believed the trend was for widening deficits.

There was a stark contrast across the world, with the UK posting a record £23.8bn deficit with the rest of Europe but a record £6.2bn surplus with the United States.

This trend also emerged from the figures for December, which showed a record deficit with Europe of £2.8bn and an unsurpassed surplus of £856m with the US. This meant the UK reported a smaller than expected deficit of £4.2bn in December, while the deficit with non-EU countries unexpectedly shrank to £1.4bn from November's £2.2bn.

The stark contrast between trade with the US and the eurozone came despite moves in currency markets that would tend to favour the opposite. British exports have become 16 per cent more expensive in dollar terms over the last year, but prices have remained unchanged in currency terms for customers buying in euros.

Economists said the pattern reflected the gulf between demand from a booming US economy and anaemic eurozone demand. They warned the recent surge in the pound against the dollar, which sank 3.4 per cent in December alone, threatened to crimp demand from the US.

Paul Dales at Capital Economics said: "The rise in the pound may soon start to filter through and restrain demand. There needs to be an improvement in exports to the EU if the UK's external sector is going to strengthen considerably further."

Meanwhile, a separate report warned that almost 30,000 manufacturing jobs would be axed over the next three months, despite an upturn in new orders. A CBI survey of 828 companies showed business optimism had improved markedly in most regions, except the West and East Midlands and East of England.

Doug Godden, its head of economic analysis, said: "There are now clear signs of a revival in manufacturing at the national level, with rising demand from overseas playing an important role.

"But policy-makers should take note of two facts. The recovery in demand has yet to spread to all parts of the UK, and the decline in manufacturing jobs, across the country, looks set to continue for a while yet."