Trade gap widens to pounds 1.2bn

Britain's trade gap with the rest of the world slipped further into the red in July, according to official figures released yesterday. The deficit in goods, which excludes invisible earnings such as investment income, was pounds 1.2bn, compared with pounds 1.1bn in June.

However, the figures suggested the pattern of UK trade was shifting. Smaller deficits were recorded over the past two months with non-EU countries, which account for around 40 per cent of UK exports. The Office for National Statistics said the trade gap with countries outside the EU shrank from pounds 700m to pounds 500m in August, the lowest since last November.

Britain's total exports to the rest of the world in July rose 0.5 per cent to pounds 13.8bn. The improvement came from a 2.5 per cent increase in non-EU exports while exports to EU economies fell by 1 per cent. Total imports in July rose by 1 per cent to pounds 15bn, with a 2.5 per cent increase in imports from EU countries and a 1 per cent fall from non-EU countries.

July's deficit was slightly higher than that predicted by City economists, though Kevin Darlington, from stockbrokers Hoare Govett, said the figures showed the recovery had not led to a massive surge in imports.

"We are heading for a current account deficit this year of less than 1 per cent of the UK's gross domestic product, which can be readily financed. In the late Eighties, at its worst, the deficit hit 4 per cent of GDP," he said.