UK trade deficit widens

Chancellor George Osborne was dealt a pre-Budget blow after official figures showed Britain’s trade deficit widened to £2.6 billion in January due to a disappointing export performance.

Chancellor George Osborne was dealt a pre-Budget blow after official figures showed Britain’s trade deficit widened to £2.6 billion in January due to a disappointing export performance.

Data from the Office for National Statistics (ONS) showed the gap between imports and exports of goods and services rose markedly from a deficit of £700 million in December, dampening hopes of a much-needed rebalancing in the economy.

But there was some brighter news from the construction sector after a surge in demand for repair work amid January’s floods and storms helped building firms emerge relatively unscathed from the extreme weather.

The ONS said output in the construction sector rose 1.8% between December and January, down only marginally on the 2% growth recorded in December thanks largely to a 3.5% hike in repair and maintenance work from storm-battered households.

It has been a mixed week for the UK economy after figures also showed a slowdown in growth across the industrial sector in January, which saw output rise by a paltry 0.1% despite manufacturing enjoying its strongest rise in activity for nearly three years.

The worse-than-expected trade figures suggest the economy still has some way to go in reducing its reliance on consumer spending and puts pressure on Mr Osborne ahead of next week’s Budget to help boost exports.

Exports of goods decreased by 4% between December and January to £24.2 billion, while imports increased by 3.4% to £34 billion.

But experts cautioned January’s trade data was likely to be volatile due to erratic levels of imports for ships, aircraft and certain commodities, such as precious stones and silver.

Imports of these goods leapt 57% higher in January, according to the ONS, with the majority of the increase down to aircraft.

Samuel Tombs, UK economist at consultancy Capital Economics, said despite the expected volatility, the underlying picture showed little improvement for the UK’s trade position.

He added the fall in exports was “perhaps an early sign that the stronger pound is starting to have an adverse effect on the UK’s economic recovery”.

“With demand from the UK’s main trading partners in the eurozone unlikely to rise significantly soon, we continue to think that the UK’s economic recovery will receive little in the way of support from the external sector this year,” he cautioned.

The trade gap widened as a £9.8 billion deficit on goods offset a £7.2 billion surplus on services in January.

The British Chambers of Commerce (BCC) said the long-term picture was more encouraging, with a fall in the deficit over 2013 as a whole.

David Kern, chief economist at the BCC, said: “Nevertheless, the pace of the UK’s rebalancing towards net exports is far too slow, and if this continues we risk missing out on the Prime Minister’s target of exports reaching £1 trillion by 2020.”

The ONS also slashed its estimation for construction activity in the fourth quarter of 2014, revising it down to a fall of 0.2% from a rise of 0.2%.

But it said the move would not have an impact on overall gross domestic product growth data for final three months of last year, when the economy grew by 0.7%.

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