Archive for the ‘Balance of Trade’ Category
Tuesday, August 3rd, 2010
Net exports of the UK financial sector fell by 17% in 2009 to £41.8bn. This was the second highest figure on record but was, not surprisingly, down from £50.6bn in 2008 as a result of the ‘credit crunch’. These figures were published yesterday by TheCityUK, an independent body which promotes the UK financial services industry.
Although securities dealers contributed £1.4bn, fund managers £2.9bn and professional services £6.4bn, banks were by far the biggest contributor. The banking sector recorded net exports of £31.0bn in 2009, down from £25.3bn in 2008.
These figures are really important because the £41.8bn in net export earnings from the UK financial sector is helping to offset the £82bn trade deficit in goods. And, the banks’ contribution is nearly three-quarters of the financial sector surplus account.
So, love them or hate them, the banks are important to the UK economy. This means that the government is having to tread warily in its dealings with banks and has not yet introduced any financial reforms. Basically, they have asked the banks to act in a grown-up and honourable fashion, when the investment arms seem to be run by risk-taking, overgrown kids, intent on creating the biggest bonus they can. It’s like the children running the school.
Just this week HSBC has announced that it is putting $2.52bn (£1.6bn) into a piggy bank for the first six months of its financial year, to hand on to its investment banking arm. This is up $300m on last year even though the bank’s operating income has dropped by $10.3bn. HSBC is not alone in its desire to keep bonuses buoyant.
Just two years ago UBS put a stop on bonuses which almost led to the collapse of its investment bank, as bankers went elsewhere to where the grass was greener. So, unilateral action taken by a single bank has been seen not to work. This then begs the question, supposing the government, as has been threatened, caps all UK bonuses. Does this mean that we will have an emigration flood to Frankfurt, New York and Tokyo as bankers seek more lucrative employment in a less regulated market.
This is a dangerous game of ‘call my bluff’ which the government cannot afford to lose, given the earning power of the financial sector. The banks are still in the mindset of taking mega risks, for mega profits to supply themselves with mega bonuses. The knowledge that the government will act as lender of last resort, as in the recent banking crisis, and bail them out of their own indiscretions, is not going to help.
The government has got to draw a fine line between giving the ‘golden goose’ a good slapping and killing it altogether.
Tags: Balance of Trade, Banking, bonuses, finacial services
Posted in Balance of Trade, Banking, Service Sector | No Comments »
Friday, July 9th, 2010
The UK’s deficit on trade in goods and services widened to £3.8bn in May, compared to a deficit of £3.5bn in April. This is the worst balance of trade deficit for two years. These figures were published by the ONS today.
The surplus on trade in services was £4.2bn in May, up from the £3.9bn recorded in April. On the other hand, the deficit on trade in goods was £8.1bn in May, compared with a deficit of £7.4bn in April.
What is of real concern is that exports rose by less than £100m (0.2%) while imports went up by £700m (2.4%).
The recent change can be seen in the graphic below.
 Balance of Trade Source: ONS Evidence from surveys show that there was a sharp slowdown in UK export orders last month, and yet export growth is supposed to be an integral part of our recovery plan.
The government is cutting expenditure as we well know. Exports are continuing to be a deficit item. Only consumption and investment are left to drive the economy. With large job losses expected and a rise in VAT on the horizon, we can expect a slowdown in spending. That leaves investment. How many firms are thinking that this is the ideal time to invest in new plant and machinery? Not many, that’s for sure. Especially amongst the companies that are losing government IT projects and school rebuilding programmes. How many companies actually supply the public and local authority sectors? Many thousands of these are going to see a sharp drop in their sales over the next few years.
“The only way is up” sang Otis Clay in 1982. Well, it certainly looks at the moment as though the only way is down.
At least falling consumption should put a brake on imports. And, the trade figures have been hampered by the strength of sterling, the austerity programmes introduced throughout Europe and the slowdown in Asia. It is not looking good.
Tags: Balance of Trade, consumption, exports, government spending, imports, Investment, sterling
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Friday, June 25th, 2010
I have just recovered from the Budget this week, as it was even worse than I had anticipated. I keep writing in my blogs that extreme austerity packages are going to damage the economy but George Osborne is just not listening. What’s the point of me writing all this if he is not taking a blind bit of notice.
I saw quoted today that Albert Edwards a strategist at Societe Generale, said: “The clowns pulling the levers of fiscal and monetary policy will take us back into recession. He thinks that both economic and market recovery will “collapse like a pack of cards” as governments remove their financial stimuli.
I’m already putting money under the mattress and trying to sell our cat on ebay, but the economy is going to get worse. I did, however, note that David Cameron on his way to the G20 conference in Canada, has said that the government expect growth to continue as a result of a loose monetary policy.
It is true that the Governor of the Bank of England has applauded the austerity package, but will an overtight fiscal policy be offset sufficiently by a loose monetary policy. Plus, the Bank does not have much to play with. It cannot reduce interest rates below half a per cent, and the only alternative would be more quantitative easing, which isn’t likely to happen.
There are problems with sovereign debt and the question marks over which countries might default on their loans. Greece is a prime example of this with Greek bond prices falling this week as buyers sought higher yields. However, the UK is not Greece and we have not seen any dilution in the demand for UK debt.
In conclusion, it is true that the markets welcomed the Budget. The pound appreciated against the euro which is supposed to be a good sign, but will make our exports more expensive. Anyway, it won’t matter, because none of the countries that are introducing fiscal austerity programmes will be able to afford our exports anyway. I’m off to the pub.
Tags: austerity packages, Budget, fiscal policy, monetary policy, Public Finances, sterling
Posted in Balance of Trade, Exchange Rates, Fiscal stimulus, Interest rates, Public Finances, government borrowing, government spending | No Comments »
Friday, May 14th, 2010
Is this more bad news? Let’s look at yesterday’s stark figures from the ONS. The UK’s trade deficit in goods and services widened from £2.2bn in February to £3.7bn in March. Although the trade in services remained in surplus to the tune of £3.8bn in March, this was down from the £4.1bn recorded in February. When it comes to the deficit on trade in goods this was up from £6.3bn in February to £7.5bn in March.
Whilst it is true that the UK has not had a surplus on visible trade since 1982 these figures are still poor. In fact exports rose by £0.2bn between February and March but imports rose by £1.4bn. The recent trend in the balance of trade can be seen below.
 Balance of Trade Source: ONS So, how can we make sense of these figures? We all thought that with sterling depreciating as it has we were looking forward to an export-led recovery. What has gone wrong?
There are several answers to this question which either explain or mitigate the extent of the poor trade figures for March. First of all, we had atrocious weather in January. This resulted in a delay in the export of some goods into February which boosted February’s figures more than we would have expected. Therefore, the increase in the deficit in March compared to February is not quite so bad.
Also, although the weakness in sterling should improve our export competitiveness, it does require that these gains are passed on in lower prices by exporters. If exporters raise prices to widen their margins this is not going to help sales. In fact, in March export prices rose by 2.9% whilst import prices rose by 2.7% compared to February.
On top of this, lower prices are not going to help export sales if our main customers are not recovering fast enough to buy our products. The wave of austerity running across Europe at the moment is not going to help us sell more products.
Finally, I mentioned in my blog on Wednesday that UK manufacturing output had risen by 2.3% between February and March which in terms of recent performances was nothing short of staggering. This revival in UK industry is obviously good news. However, the drawback is that this increase in manufacturing has required the import of increased amounts of intermediate and semi-manufactured goods as well as raw materials. This helps to put the increasing trade deficit in a more positive light.
Tags: Balance of Trade, EU, exports, goods, imports, Manufacturing, services, sterling
Posted in Balance of Trade, European Union, Exchange Rates, Manufacturing, sterling | No Comments »
Thursday, April 15th, 2010
It has been really puzzling as to why our balance of trade has not been improving. With sterling having depreciated by 25% since the beginning of 2007, we would have expected that this surge in price competitiveness to have boosted exports dramatically.
The good news is that UK exports now seem to be really motoring. Well, not so much motoring, more chemicals and oil. In fact, comparing February with January, the volume of UK exports rose by 6.3%, whilst the volume of imports fell by 1.4%, after excluding oil and other erratic items.
What has this done to the balance of trade? The recent picture can be seen in the graphic below.
 Source: ONS Balance of Trade The UK’s traditional deficit on trade in goods was £6.2bn in February, but this had fallen from a deficit of £8.1bn in January. Exports of goods increased by £1.8bn, whilst imports remained broadly unchanged. This was the biggest monthly increase in exports since January 2003 and smallest goods deficit since June 2006.
There was a surplus on trade in services in February of £4.1bn which was £0.1bn down on the previous month. And, overall, the UK’s deficit on trade in goods and services combined was £2.1bn in February, compared with a deficit of £3.9bn in January.
It had been suggested previously that UK exporters might not have allowed their prices to depreciate in terms of foreign currencies to the extent that the fall in the value of the pound would have allowed. Instead, they may have seized their opportunity to raise their profit margins on a limited level of exports rather than opting to increase their sales volumes and market share through lower prices.
However, the current boost in export volumes is good news and will help the return to growth in the UK economy.
Tags: Balance of Trade, economic growth, exports, imports, sterling
Posted in Balance of Trade, Exchange Rates, International Trade, economic growth, sterling | No Comments »
Tuesday, March 9th, 2010
The UK’s deficit on trade in goods and services was £3.8 billion in January, compared with a deficit of £2.6 billion in December, according to figures released today by the ONS.
The surplus on trade in services was slightly down at £4.2 billion in January, compared with a surplus of £4.4 billion in December.
The deficit on trade in goods was £8.0 billion in January, compared with a deficit of £7.0 billion in December, and was the widest deficit since August 2008.
 Disappointing trade figures for January. Although the deficit with EU countries fell to £3.2 billion in January, compared with a deficit of £3.6 billion in December, the deficit with non-EU countries widened to £4.8 billion in January, compared with a deficit of only £3.4 billion in December. Trade with non-EU countries reflected a fall in exports of 12.5% on the month and a rise in imports of 1.6%.
Overall, excluding oil and erratic items, the volume of exports fell by 6.0 per cent and the volume of imports fell by 1.2 per cent, compared with December.
These numbers are particularly disappointing, as we would have expected a boost from the decline in the value of sterling. In fact over the month export prices fell by 0.6 per cent but import prices rose by 0.6 per cent as might have been expected, but this has not been reflected in an improvement in our trade balance.
Exports may have been hampered by the bad January weather, or this may be a one-month ‘blip’. We shall have to wait and see what happens next month, but the increasingly negative figures are not going to help the recovery of GDP growth this quarter, following on from the 0.3 growth in the final quarter of 2009.
Tags: Balance of Trade, economic growth, sterling
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Tuesday, February 9th, 2010
In 2009 the UK saw its first annual decline in its trade deficit since 1997. However, both imports and exports fell at their fastest rate for fifty years, with the level of imports dropping by 10.3% whilst the level of exports fell by 9.5%. Taking the deficit on trade in goods alone, this narrowed from £93.4bn in 2008 to £81.9bn in 2009. This was also the first fall in the annual goods deficit since 1997.
However, the trade situation worsened towards the end of the year. Whereas the surplus on trade in services was £4.0bn in December, compared with £3.9bn in November, the deficit on the trade in goods widened by more than anticipated. In fact the goods deficit in December 2009 was £7.3bn, which compares with a deficit of only £6.8bn in November, which was the worst figure for nearly a year.
 Although the UK trade deficit improved in 2009 as a whole, the situation worsened towards the end of the year.
The reason for the goods deficit was that imports rose by more than exports, with exports rising by £0.9bn and imports by £1.4bn. This was particularly due to a month-on-month increase in non-EU imports of 7.6%, which was the largest since March 2005. The overall balance of trade in goods and services widened in terms of the deficit, from £2.9bn in November to £3.3bn in December.
Unfortunately, the weakness of sterling has not increased our export sales as much as was hoped. This unexpected worsening of the deficit towards the end of 2009 will have repercussions on the Gross Domestic Product figures. The preliminary estimate for GDP in the final quarter of 2009 was 0.1% growth, and this will certainly not be revised upwards as a result of the disappointing trade figures.
Tags: Balance of Trade, sterling, trade in goods, trade in services
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Tuesday, November 10th, 2009
The deficit on UK trade in goods and services seasonally adjusted increased from a deficit of £2.2bn in August, to a deficit of £3.5bn in September.
The deficit on trade in goods alone was £7.2bn compared with a deficit of £6.1bn in August, whereas the surplus on trade in services fell from £3.9bn in August to £3.7bn in September.
When oil and other erratic items are removed, the seasonally adjusted volume of exports was 0.2% lower whilst the volume of imports rose by 4.1% in September, compared with August.
When considering the value of trade rather than the volume, total exports rose by £0.7bn to £19.4bn, which was a rise of 3.9%. However, total imports rose by £1.9bn or 7.5% to total £26.6bn.
 A sharp rise in imports worsened the UK's trade gap in September.
Why did imports increase by such a large amount? Somewhat perversely our imports of cars rose by £432m in September compared with August. This was largely due to the car scrappage allowance whereby the government gives an allowance of £2000 against the purchase of a new car when an old car is scrapped. Unfortunately, the major impact of this last month was to draw in imported cars to meet the demand. Thus our imports of cars increased by 30% on the previous month, as a result of government incentives.
On top of this there were substantial increases in our imports of intermediate goods, chemicals and aircraft.
Tags: Balance of Trade, exports, imports
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Monday, October 12th, 2009
UK output prices for all manufactured goods rose by 0.4% in September compared to the same month last year, according to the Office for National Statistics. This is also referred to as ‘factory gate inflation’ and analysts were very surprised by the figure. Only two months ago in July, the figures were showing a fall in price of 1.3% compared to the same month last year, so there has been a very fast turnaround in output prices.
The increase in price largely reflected price rises in petroleum and other manufactured products. But, the ‘narrow’ measure of output prices, which omits volatile items such as food and oil prices, actually rose by 1.4% on an annual basis. It is this latter figure which is particularly worrying, as it reflects ‘core’ inflation.
 Output prices for UK manufactured goods have been rising at a surprising rate. The UK has been hit in recent months by a continuing fall in the value of sterling, which is making imports more expensive. There have also been rises in commodity prices. Both of these taken together are putting pressure on manufacturers to raise their output prices.
The upshot of this is that it looks as though UK inflation is going to be ‘stickier’ than in many other advanced economies. Although the general consensus is that the Bank of England will keep interest rates at 0.5% for the foreseeable future, they may have to think again if these output figures follow through into retail inflation. It will be interesting to see the September retail inflation figures when they are released this week.
In the meantime, the fall in sterling does have a silver lining. Latest figures show that the UK trade deficit fell from £2.6bn in July down to £2.0bn, while the deficit on the trade in goods fell from £6.4bn to £6.2bn, which was the smallest deficit since June 2006. Our exporters are obviously being helped by being able to offer lower export prices as a result of sterling’s weakness.
Tags: Balance of Trade, factory gate prices. sterling, output inflation
Posted in Balance of Trade, Inflation, sterling | No Comments »
Friday, July 10th, 2009
The UK’s deficit on trade in goods and services fell from £3.0bn in April to £2.2bn in May. When we look at the component parts we continued to enjoy a surplus on trade in services, which was £4.1bn, which was the same as in April. However, the deficit on trade in goods fell from £7.0bn in April to £6.3bn in May. This was the lowest deficit on the goods account for three years.
However, whilst the effect is good news, the cause probably isn’t. The figures show that imports fell by £1.0bn whilst exports fell by £0.2bn. So, we were actually selling fewer goods overseas and our trade position only improved because we were buying so many fewer imports. This reflects the fact that consumers are having to cut back even further on expenditure due to the recession rather than the fact that our exporters are doing so much better.
The recent trend in the balance of trade can be seen in the figure below.
 Source: ONS
Germany also reported its trade figures yesterday, and experienced something of a turnaround, especially as far as exports are concerned. German exports actually rose 0.3% in May, whilst imports fell by 2.1%. This means that Germany experienced a trade surplus of 10.3bn euros or £8.9bn. Although this is encouraging, German exports were still 24.5% below where they stood in May 2008.
Tags: Balance of Trade, Germany, trade defiict, trade in goods, trade in services
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