Analysts had hoped a fall in the value of the pound following the financial crash would end 30-year run of trade deficits
Britain’s trade deficit narrowed slightly in November after a drop in exports to continental Europe was partially offset by a rise in the sale of goods and services to other areas of the global economy. The Office for National Statistics said the seasonally adjusted deficit on the trade in goods and services was estimated at £3.5bn in November compared with £3.7bn in the previous month.
However, Britain’s balance of payments is heading for another poor year. The long-term decline in oil exports from the North Sea continued to expose the lack of overseas sales by manufacturing firms – a key aim of Georghe Osborne’s “march of the makers” – while imports remained high.
North Sea oil production has helped ease the UK’s balance of payments deficit – created by importing more goods and services than we export – for decades. In recent years a combination of high extraction costs and disputes over windfall taxes imposed by the Treasury has discouraged firms from increasing production.
But even figures that exclude oil and other erratic items registered a deficit on the trade in goods for the three months to November of £22.3bn.
Overall, a surplus in the export value of services over the three months to November of £17.3bn was trounced by a huge deficit in goods of £27.1bn.
Analysts had hoped that a fall in the value of the pound following the financial crash would end a 30-year run of trade deficits. The pound is worth around 20% less than its value before 2008 despite a strong recovery over the last year.
Exports have increased marginally, the ONS said, but the increase was offset by even higher imports, especially from the eurozone.
Economists at HSBC, Royal Bank of Scotland and fund manager M&G have warned of a possible balance of payments crisis unless the UK can reduce its persistent over-spending. Without an adjustment that either reduces imports or pushes up exports, investors may become wary of putting their funds in the UK.
Chris Williamson, chief economist at financial data provider Markit, said he took some comfort from an upturn in goods exports in November that added to signs the manufacturing economy improved in the final quarter of last year.
“However, the trade deficit looks likely to have risen compared to the third quarter, and remains very high by historical standards, thereby acting as a drag on economic growth and adding to the possibility that the UK contracted at the end of last year,” he said.
Martin Back, UK economist at Capital Economics, said: “Without a marked turnaround in December, net trade looks like it may well drag on GDP growth in the final quarter of the year. But prospects for such a turnaround are slim. While recent surveys of export orders have picked up a touch, they remain low. And the weakness of the eurozone economy means that any marked narrowing of the deficit is a distant prospect.”