Britain’s trade position worsened in June, as exports fell for a third month in another blow to the government’s ambitions to rebalance the economy.
The trade in goods deficit widened unexpectedly to £9.4bn from £9.2bn in May after British exports fell more than imports according to the Office for National Statistics (ONS). Economists had expected the deficit to shrink to £8.8bn, and said that tensions between Russia and the west, a weak eurozone economy, and a strong pound making British goods more expensive abroad, were all likely to weigh on foreign demand for UK goods in the short term at least.
Chris Williamson, chief economist at Markit, said Britain’s trade position was likely to deteriorate in the coming months, weighing on UK growth.
“The trade figures are some of the worst seen in recent history. Exporters are being hit on two front. First, by an appreciating exchange rate, which has risen 10% over the past year.
“Second, already weak demand in many overseas markets is being hit further by growing uncertainty about the Ukraine crisis, especially in northern Europe. Escalating geopolitical events in Gaza and Iraq add to the sense that global risk aversion is creeping higher, which will inevitably mean slower economic growth.”
George Osborne has long argued that a sustainable future for the UK economy depends on a lesser reliance on debt-fuelled spending and the financial services and a greater reliance on manufacturing and exports. The chancellor set a target in 2012 of doubling UK exports to £1tn by 2020, but so far the rebalancing of the economy has proved elusive.
The June data completed the trade picture for the second quarter, and showed a widening of the goods deficit to £6.9bn from £5.5bn in the first quarter.
Rob Wood, chief UK economist at Berenberg said the latest figures highlighted “the lopsided nature of the UK’s recovery”.
Exports fell by £400m in June to £23.5bn, largely driven by a drop in oil exports and manufacturing goods. Imported goods fell by £100m to £32.9bn after a fall in oil and aircraft imports.
Britain’s main trading partners are the European Union and the US. In a bid to create demand for UK goods elsewhere and improve Britain’s global trade position, Osborne has led various trade missions to some of the world’s emerging powers, including China. However the ONS said June’s fall in both exports and imports was driven by a drop in trade with countries outside the EU in the latest setback for those ambitions.
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