UK trade deficit widens to biggest in 17 months

The UK's trade gap with the rest of the world widened unexpectedly in January to its largest since August 2008.

Exports saw their sharpest drop in more than three years, according to the Office for National Statistics (ONS).

The UK's trade gap in goods and services widened to £3.8bn, compared with £2.6bn in December.

The news came as a disappointment and caused the pound to weaken, dipping 0.4% to 1.10 euros and losing 0.75% against the dollar to below $1.50.

The UK's currency has fallen by some 24% against a basket of world currencies since early 2007 - before the global economic crisis.

That fall in the value of the pound, making UK goods cheaper abroad, might have been expected to boost sales overseas.

But BBC economics editor Stephanie Flanders said that in difficult economic conditions, UK manufacturers may have taken advantage of a weaker sterling to increase their profit margins rather than increase sales.

"There is no doubt that the sharpest fall in the value of sterling since the war happened at a bad time for exporters to make the most of it," she said.

"It is perhaps not surprising that our exporters tried to extract every last penny out of the demand that was still there."

Increased imports

The trade gap in physical goods widened to £7.99bn, well above the £7bn economists had forecast.

Meanwhile, December's figure was revised down to £7bn from its original £7.3bn.

The goods trade gap with non-European Union countries was also wider than forecast.

That stood at £4.8bn, from £3.4bn in December, after exports to countries outside the EU dropped by 12.5% on the month and imports rose by 1.6%.

The ONS said there was no obvious reason for this month's deteriorating picture, although some have suggested that the particularly bad weather in January may have disrupted trade flows.

The unexpected data came as a surprise - and a disappointment - to experts.

Jeremy Stretch, senior market strategist at Rabobank, said: "It could be that the weakening of sterling is taking time to feed through - but that may be painting too much of a positive on a negative set of numbers."

"It's a pretty disappointing number," said analyst Alan Clarke, of BNP Paribas.

"Trade is one area where people have been expecting an improvement but it doesn't seem to be happening. In the big picture this is bad news for quarter one GDP."

Posted at 08:47PM Mar 09, 2010 by Kelly Board in The Economy  |  Comments[0]