2010.09.0908:37:00UTC+00U.K. July Visible Trade Deficit Widens To Record High

The U.K. trade in goods deficit widened to a record high in July, casting doubt over the ability of exports to underpin economic growth in the coming months.

With export recording a fall and import rising from the prior month, the deficit on trade in goods widened to GBP 8.7 billion in July from a revised shortfall of GBP 7.5 billion in June, data from the Office for National Statistics showed Thursday. The deficit stayed well above the expected shortfall of GBP 7.5 billion.

Exports fell by GBP 0.2 billion or 0.9% to GBP 22.3 billion, but imports rose by GBP 0.9 billion or 3.1% to GBP 30.9 billion. The increase in imports suggests improvement in domestic demand.

"The UK's export performance so far in 2010 has been lacklustre and largely disappointing, given the past sharp depreciation of the pound and improved global growth and trade," said IHS Global Insight's Howard Archer. The economist sees a serious risk that British exports will face over the coming months by slowing global growth.

ONS data showed that the visible trade deficit with EU nations increased GBP 0.6 billion to GBP 3.9 billion in July as exports decreased from the previous month. EU exports dropped by GBP 0.2 billion, while imports grew by GBP 0.5 billion.

The deficit with non-EU countries totaled GBP 4.8 billion in July, larger than the GBP 4.3 billion deficit recorded in June. As seen in the trade with EU nations, non-EU exports decreased and imports increased from the previous month.

The overall trade deficit in goods and services was GBP 4.9 billion in July compared with a shortfall of GBP 3.9 billion in June. Meanwhile, the surplus on trade in services rose to GBP 3.8 billion from GBP 3.6 billion.

"With the lower pound still having little positive effect, the chances of the recovery retaining its recent momentum look slim," commented Vicky Redwood at Capital Economics. She said the economy is still showing few signs of replacing its reliance on the public and consumer sectors with a bigger contribution from the external sector.

The British economy had expanded in the second quarter at its fastest pace since 2001. Gross domestic product rose 1.2% sequentially in the second quarter, following a 0.3% growth in the first quarter. British Chambers of Commerce foresee GDP growth of 1.7% in 2010 and 2.2% in 2011.

Back to news list