UK trade deficit narrows due to rising exports

Posted by Simon Hadley in Personal Finance on 10 June 2016 - Simon is a Credit Analyst at checkmyfile.

The UK’s trade deficit narrowed in April for the first time in three years, while exports also increased at their fastest rate since 2010.

Thursday’s trade figures released by the Office of National Statistics confirms that the total trade deficit narrowed to £3.3bn in April in comparison to £3.5bn in March. The total value of all exported goods rose by 11.2%.

Although the news has been welcomed by exporters, the general consensus amongst economists is that companies should continue to err on the side of caution.

Scott Bowman of Capital Economics believes that the recent improvement was “nothing to get excited about” while David Kern of the British Chambers of Commerce has warned that the UK’s long-term deficit remains “unacceptably high”.

Britain’s economic growth slowed to a quarterly rate of 0.4% in the first quarter of this year - a drop of 0.2% in comparison with the same period in 2015. Meanwhile, the UK’s trade in goods deficit with the EU also increased by £0.6bn during this period, culminating in a deficit of £23.8bn.

In contrast, the trade deficit with non-EU countries narrowed to £8.8bn during the first quarter of 2016 due to a rise in exports to the United States worth an estimated £900m to the UK economy.

Michael Martins of the Institute of Directors says, “These types of export goods are the most likely to be subject to tariffs in the event of Britain leaving the EU, so any positive effect may be short lived.”

The sterling has continued to depreciate since the Prime Minister announced the EU referendum date in February last year.

Dennis de Jong of UFX.com says, “Leave will argue the deficit is all the more reason for Britain to focus on trade relationships beyond Europe, while Remain will caution against the damage a Brexit could do to a trade deficit which is already causing concern.

“Whichever way the June 23 vote goes, Osborne faces a significant challenge to balance Britain’s trade in the face of weakening global demand and financial uncertainty.”

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