UK trade gap narrows more than expected

Britain’s goods trade deficit narrowed more than expected in April as imports dropped, adding to signs the country’s economic growth will gather pace in the second quarter but still reflecting a weak recovery.

The Office for National Statistics yesterday said the goods trade deficit shrank to £8.22 billion from £9.17 billion in March. Economists in a Reuters poll had forecast a gap of £8.8 billion.

Three years ago, Britain began trying to rebalance its economy more towards exports and away from a reliance on domestic consumption after the financial crisis. But progress has been slow, despite a roughly 20 per cent fall in the value of sterling since 2008.

Yesterday’s data did nothing to change that. Imports fell by about £1.3 billion to just over £33.4 billion, while exports fell at a slower pace.

“If you look at import and export numbers on an underlying basis, much of the improvement is that imports are falling, not that exports are rising,” said Ross Walker, an economist at the Royal Bank of Scotland.

Nonetheless, the figures will help bolster Britain’s gross domestic product in the second quarter, given the lower level of imports. Net trade lopped 0.1 percentage points off GDP growth in the first quarter.

Including Britain’s surplus in trade in services, the overall trade deficit in April narrowed to £2.579 billion from £3.249 billion in March, also driven by a fall in imports.

Over the three months to April, goods exports were up 0.8 per cent while imports rose 1.1 per cent.

Goods exports to the EU, much of which is stuck in recession, were their lowest in the three months to April since the three months to June 2012.

Britain’s trade figures for April contrasted with those of Germany, released earlier yesterday, which showed exports rising and imports surging even more.

Britain’s goods trade deficit with non-EU countries narrowed to £3.414 billion in April from £3.469 billion in March, lower than forecasts for a gap of £3.6 billion.

May’s private-sector surveys of purchasing managers in the manufacturing and services sectors point to a 0.5 per cent rise in British economic output in the second quarter, building on 0.3 per cent growth in the first quarter.

However, the prospects for exports may be darker as the eurozone, the destination for just under half of British exports, contracted by 0.2 per cent in the first three months of 2013, hurt by austerity measures in many member states.

Despite its slow growth, British inflation remains a problem that has deterred the Bank of England from pumping more stimulus into the economy. (Reuters)