Collapse in European exports fuels record British trade deficit of £3bn

Britain's exports to the 12 members of the single European currency have collapsed, raising fears that the UK is paying a high price for staying outside the euro.

Internal links

Outlook

Britain's exports to the 12 members of the single European currency have collapsed, raising fears that the UK is paying a high price for staying outside the euro.

The UK's trade deficit with the euro area has ballooned from just £300m two years ago to a record £1.87bn in the first three months of this year, according to the Government's own figures published yesterday.

On a monthly basis the contrast is even starker, showing that a tiny £9m deficit in September 2000 has inflated to a £689m shortfall in March – itself a 62 per cent increase from February's deficit.

The slump contributed to a record global trade deficit of £3bn in March, which may force the Government to cut its estimates for economic growth.

Campaigners for British membership of the monetary union seized on the figures, saying UK trade with the euro countries was close to a 12-year low. Simon Buckby, campaign director of Britain in Europe, said: "This is further evidence of the rising cost of Britain's isolation from the common currency."

He said that in stark contrast the economies using the euro saw their trade with each other increase over the past three years. "The euro makes it easier for European countries to trade with each other but the volatile and overvalued pound puts Britain at a big disadvantage," Mr Buckby said.

Economists in the City said the worsening performance was driven by the surge in the value of the pound against the euro since its launch in 1999. Danny Gabay, at the investment bank JP Morgan, said: "While it may be a stretch to argue that this is purely a euro effect, it is noticeable that the UK runs a very healthy surplus with the two EU countries that are not in the euro."

Diane Coyle, the managing director of Enlightenment Economics, a consultancy, said factories were relocating from the UK into the euro currency area."This can only get worse as Britain stays out of the euro," she said.

The record £3bn global trade deficit in March could also cause a headache for the Chancellor, Gordon Brown, as he tries to make the public finances add up.

Economists said the scale of the deficit could force govern-ment statisticians toscrap their estimate the economy grew by an anaemic 0.1 per cent in the first quarter – leaving the economy just a whisker away from the technical definition of recession – two quarters of negative growth. As The Independent revealed last month, the UK economy contracted slightly in the last quarter of 2001.

The Conservatives seized on the figures, saying they highlighted the imbalances in the economy. Michael Howard, the shadow Chancellor, said: "Exporters will have their task made harder next year by the tax on jobs in the Budget, further undermining Britain's competitive position."

But economists said although the trade deficit was a record number, as a share of GDP it was still only half the size of the deficits seen during the 1980s boom.