Office for National Statistics says trade deficit in goods and services has jumped to £3.6bn
Britain’s ability to recover from the financial crisis took another knock on Thursday after official figures showed the trade gap widened in October.
Only a day after the chancellor, George Osborne, was forced to accept that the economy would grow more slowly than previously thought, the Office for National Statistics said the trade deficit in goods and services jumped to £3.6bn from £2.5bn in the previous month.
Fears that the UK could suffer a triple dip recession are likely to be heightened by the figure, which is higher than the £3bn economists were expecting and provides strong evidence that exporters are failing to win orders abroad.
The trade in goods, which includes cars and other manufactured goods, was even worse. It reached £9.5bn, offset by an estimated surplus of £5.9bn on services.
According to the ONS, the trade gap in goods is averaging £8.9bn a month, which is higher than the £8.5bn a month last year.
The widening trade gap in October, which was driven by a 1% fall in exports and 2.5% rise in imports, supports the widespread view that the UK economy will struggle to regain momentum over the next two years.
Osborne will be especially concerned about his attempts to rebalance the economy towards exports after the figures showed the deficit in goods in the three months to October widened to £28bn, its highest level since records began.
The Office for Budget Responsibility’s assessment of the UK economy found that a collapse in net trade was one of the chief reasons for a downgrade of growth over the next four years. According to the OBR, unemployment is likely to rise next year before falling slowly in 2014 as exports begin to pick up.
Martin Beck, UK economist at Capital Economics, said the trade figures do little to dispel the sense of torpor surrounding the UK economy.
“In its forecast published yesterday, the OBR expects net trade to provide some modest support to the economy over the next few years,” he said. “But in the near-term, with the eurozone economy in recession and recent survey indicators suggesting mixed prospects for UK exporters, we don’t think that the economic recovery can rely on the export sector.”
Howard Archer, chief economist at HIS Global Insight, said the trade figures would be a further drag on the economy after weak manufacturing, construction and services surveys in recent weeks.
“The October data though suggest that net trade is likely to be negative in the fourth quarter and weigh down on UK GDP. Furthermore, the latest survey evidence on foreign orders is soft overall. Certainly, it is hard to be optimistic that net trade can help the UK economy much in the near term at least given the pressure on exports coming from ongoing very weak domestic demand in the eurozone and generally soft global growth,” he said.