A £500m rise in cars shipped abroad fails to ease prospects of huge UK trade deficit in third quarter fueled by strong pound plus eurozone woes and declining oil industry. The significant improvement seen in Q2 now considered as “only temporary”…
This article titled “Car exports cut monthly UK trade deficit but quarterly gap is growing” was written by Phillip Inman Economics correspondent, for theguardian.com on Friday 9th October 2015 11.47 UTC
A rise in car exports helped improve Britain’s trade deficit in August, according to official figures.
The monthly shortfall in the trade balance for goods narrowed to £3.3bn from £4.4bn in July. However, the UK was still heading for a huge deficit in the third quarter of the year after an upward revision to July’s shortfall.
Paul Hollingsworth, UK economist at Capital Economics, said: “Even if the trade deficit held steady in September, this would still leave the deficit in the third quarter as a whole at around £11bn, far higher than the £3.5bn deficit recorded in the second quarter.”
He said this suggests that net trade is probably making “a significant negative contribution to GDP” at the moment.
Hollingsworth warned that the strong pound and weakness in demand overseas as the US economy stuttered and the eurozone remained in the doldrums meant the government’s hopes of a significant rebalancing towards manufacturing exports would be dashed in the near term.
Alongside the £500m rise in car exports in August, the chemicals industry sent more of its production to the US, the ONS said. Total goods exports increased by 3.5% to £23.6bn in August 2015 from £22.8bn in July 2015.
But this positive news was offset by the continued decline in Britain’s oil industry, which has been a major factor holding back progress this year.
Lower production and the lower oil price have dented exports, and though oil imports are likewise cheaper, they continue to rise in volume.
The mothballing and subsequent closure of the Redcar steel plant could also have had an impact as the export of basic materials dived in August by more than 10%.
The services sector recorded an improvement in its trade balance, but the ONS pointed out that the UK continued to rely heavily on the financial services industry to pay its way in the world.
Figures for the second quarter showed that the surplus on trade in services was £22.8bn, of which almost half – £10.1bn – was contributed by banks, insurers and the fund management industry.
David Kern, chief economist at the British Chambers of Commerce, said the narrowing of the deficit in August was welcome, but taking the July and August figures together pointed towards a deterioration.
“This confirms our earlier assessment that the significant improvement seen in the second quarter was only temporary.
“The large trade deficit remains a major national problem. This is particularly true when we consider that other areas of our current account, notably the income balance, remain statistically insignificant.”
Kern urged the government to adopt measures that will “secure a long-term improvement in our trading position”.
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