Trade gives boost to UK, but pound weighs on economy

Official figures showed the overall pace of the economy's growth unchanged at 0.7 per cent over the quarter

Russell Lynch
Saturday 29 August 2015 02:13

Trade gave the biggest boost to the UK for four years between April and June but the long-awaited lift for the economy may not last, experts warned on Friday.

Official figures showed the overall pace of the economy’s growth unchanged at 0.7 per cent over the quarter. But net trade, the difference between exports and imports, added 1 percentage point to the economy, its biggest contribution since 2011.

The trade performance is a fillip for the Chancellor, George Osborne, in the Government’s attempts to broaden a recovery dependent on consumer spending. Exports were up 8.1 per cent in the past year, the Office for National Statistics said.

There was further good news from business investment, which grew 2.9 per cent over the quarter in its biggest jump for a year.

But economists fear the impact of a stronger pound on UK exporters, as well as China-inspired turmoil in markets and slower growth, could yet dent the trade revival.

Capital Economics’ senior UK economist Samuel Tombs said: “Looking ahead, the pound’s recent appreciation and the continued weakness of demand in some export markets such as the eurozone and China suggest that net exports are not about to play a sustained role in supporting the economic recovery.”

Deutsche Bank’s chief economist George Buckley added that “strong net exports and government spending may weaken given global growth risks and fiscal austerity”. The figures showed estimates of growth of the UK’s production industries, including manufacturers, scaled back from 1 per cent to 0.7 per cent.

Zach Witton, the deputy chief economist at the EEF manufacturers’ organisation, said: “Weakness in the manufacturing sector highlights concerns as to whether this will be sustained. Uncertainty as to whether Greece would leave the eurozone, and the pound strengthening against the euro, probably played a part in the weak performance.”

Household spending rose 0.7 per cent over the quarter as domestic budgets are helped by near-zero inflation and more than six years of record low interest rates.

The economy grew 3 per cent in 2014, the fastest since 2006, and the Bank of England expects it to largely maintain this momentum, growing 2.8 per cent.

Analysts said Friday’s data did not affect the outlook for UK interest rates, which economists expect will start rising early next year. The markets, however, are now calculating that the Bank of England will hold off on making its first move in more than eight years on until the autumn of 2016.

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