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Have UK exports “hit the wall”?

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.

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Posted in Balance of Trade, sterling

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