UK trade gap hits two-year high

Britain's trade gap has hit the highest level in two years, as growth in exports stalled.

The trade in goods and services gap widened unexpectedly to £3.8bn in May, the worst since July 2008, the Office for National Statistics said this morning. The deficit on trade in goods rose to £8bn, the highest since January and compared with £7.4bn in April. Exports went up less than £100m, or 0.2%, to £21.5bn, while imports climbed £700m, or 2.4%, to £29.5bn.

 

"The trade figures are disappointing again," said Philip Shaw, chief economist at Investec. "The long awaited surge in exports has yet to happen. Export values have stalled month-on-month. Weakness of eurozone domestic demand is probably the main factor here."

Vicky Redwood at Capital Economics agreed. "Coming on top of the recent weakening in survey measures of export orders, the chances of a significant trade boost in the near term are looking less and less promising."

A sharp slowdown in British export orders last month, according to the Markit/CIPS manufacturing survey, has sparked concerns that the recovery in manufacturing could soon run out of steam.

The figures suggest that a stronger pound, coupled with the European debt crisis and signs of a slowdown in China and the rest of Asia, are starting to damage British sales overseas.

Alan Clarke, at BNP Paribas, said: "The faster pace of increase in imports is going to make it very hard for net exports to contribute strongly to GDP growth for the time being. We suspect that domestic demand will begin to slow later in the year which may help to moderate the pace of import growth. However, for now if we are hoping that net exports are going to be the engine of growth that drives the economy out of recession, I fear we are going to be disappointed."

Sterling slid on the trade numbers, dropping 15 points to $1.5180, before recovering and hitting the day's highs against the dollar and the euro.

Separate figures showed that inflation at the factory gate slowed more than expected to a three-month low in June. The annual rate in producer output prices dropped to 5.1% from 5.5%, with prices falling 0.3% on the month. The cost of raw materials also declined.