UK trade deficit falls

November saw a narrowing of the UK’s trade deficit.

The fall comes after a drop in exports to continental Europe was in part offset by an increase of sales and services to other parts of the globe. According to the Office for National Statistics, the seasonally adjusted shortfall on the trade in goods and services was estimated at £3.5bn in November. This compares to £3.7bn in the previous month.

North sea oil

But don’t get your hopes up, another poor year is expected for Britain’s balance of payments. This is mainly due to the long-term decline in oil exports from the North Sea which which highlights the lack of overseas sales by manufacturing firms.

The Guardian said: North Sea oil production has helped ease the UK’s balance of payments deficit – created by importing more goods and services than we export – for decades. In recent years a combination of high extraction costs and disputes over windfall taxes imposed by the Treasury has discouraged firms from increasing production.

But even figures that exclude oil and other erratic items registered a deficit on the trade in goods for the three months to November of £22.3bn.

Overall, a surplus in the export value of services over the three months to November of £17.3bn was trounced by a huge deficit in goods of £27.1bn.

Analysts had hoped that a fall in the value of the pound following the financial crash would end a 30-year run of trade deficits. The pound is worth around 20 per cent less than its value before 2008 despite a strong recovery over the last year.

Higher imports offset exports rise

The ONS says exports have increased marginally, but higher imports have offset this benefit, especially from the eurozone.

Rob Wood, chief UK economist at Berenberg Bank told the Daily Telegraph: “There are good and bad aspects, I think. There were some encouraging signs of stabilisation in exports to the EU which rose substantially on the month. On the other hand, exports to non-EU countries fell quite a bit.

“These figures can be volatile from month to month so I don’t want to read very much into those one-month moves. The overall trade balance was disappointing, in line with expectations. I think he best way to describe the economy is fragile but stable and it will remain this way for the next couple of quarters.”

Martin Back, UK economist at Capital Economics, told The Guardian: “Without a marked turnaround in December, net trade looks like it may well drag on GDP growth in the final quarter of the year. But prospects for such a turnaround are slim. While recent surveys of export orders have picked up a touch, they remain low. And the weakness of the eurozone economy means that any marked narrowing of the deficit is a distant prospect.”

photo credit: Richard Childs