Growing trade deficit continues to cause concern

18 April 2019

In the three months to February 2019, the UK’s total trade deficit (goods and services) widened by £5.5 billion.

An increase in the UK’s trade in services of £0.9 billion only partially helped to offset a trade in goods deficit of £6.5 billion, according to the Office for National Statistics (ONS).

Its latest statistical bulletin UK Trade: February 2019 (which can be found here) shows that the main reasons for the widening of the trade in goods deficit over the three months to February were rising imports of unspecified goods (including non-monetary gold), machinery and transport equipment, and chemicals.

With EU countries, the trade in goods deficit widened £1.3 billion over the period, while with non-EU countries the gap was £5.2 billion.

If the effect of inflation is removed, the ONS has calculated, then the total trade deficit stood at £12.7 billion — an increase of £7.1 billion.

Over the longer 12-month period to February 2019, the total trade deficit widened £15.9 billion, as imports of both goods and services increased more than exports.

Commenting on the ONS data, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said that the widening in trade deficit is further evidence of deep-rooted imbalances in UK economic growth.

It suggests, he added, that net trade is likely to have been a drag on UK gross domestic product (GDP) growth in the first quarter (Q1) of 2019, with slowing global growth, Brexit uncertainty and persistent sterling volatility combining to make trading conditions for UK exporters tougher.

Given its dominant share of overall UK economic output, Mr Thiru went on, the slight slowdown in GDP growth in March in the services sector is a concern. He also confirmed that an improvement in manufacturing sector output can at least, in part, be attributed to stockpiling ahead of a possible no-deal Brexit.