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New blow for Coalition economic rebalance as UK trade deficit widens New blow for Coalition economic rebalance as UK trade deficit widens
(about 3 hours later)
The Coalition’s efforts to re-balance the economy suffered a second blow in a week as official figures revealed the trade deficit swelling due to an unexpected blow for UK manufacturers. A swelling trade deficit and a shock fall in manufacturing output have dealt a blow to the Coalition's strategy of rebalancing the economy.
The nation’s goods trade deficit jumped to £9.2 billion in May, up from £8.9 billion in April and far worse than economists expected. The Office for National Statistics has reported that the trade in goods deficits jumped to £9.2bn in May, up from a £8.9bn gap in April and higher than economists' expectations.
Experts blamed a stronger pound as the Office for National Statistics said a £400 million jump in imports of aircraft parts was the main driver of the deficit, although exports to the UK’s biggest single trading partner, Europe, fell over the month. Earlier in the week official figures showed factory output fell unexpectedly by 1.3 per cent in May, with some economists suggesting the strength of the pound could be crimping export orders. George Osborne was in India this week in a bid to encourage bilateral trade and investment with the fast-growing emerging market economy.
Including the UK’s traditional surplus on services, the total deficit widened to £2.4 billion, up from  £2.1 billion in April. He has also recently heralded indications the recovery is broadening out from household consumption and services growth to business investment and industrial production.
The latest figures are a blow to Chancellor George Osborne who is in India this week in a bid to encourage bilateral trade and investment with the fast-growing economy. But Paul Hollingsworth, of Capital Economics, called the latest trade figures “disappointing” and predicted the adverse effects of the strong pound would continue to be felt by manufacturers over the coming months.
He has recently heralded indications the recovery is broadening out from household spending and services growth to business investment and industrial production, but disappointing official figures showed factory output fell unexpectedly by 1.3 per cent in May earlier this week. “For now, then, the onus remains firmly on domestic demand to keep the UK's economic recovery chugging along,” he said.
Paul Hollingsworth of Capital Economics called the latest trade figures “disappointing” and predicted the adverse effects of the strong pound would continue to be felt by manufacturers over the coming months. That view was echoed by Howard Archer of IHS Global Insight, who said: “Net trade will likely find it difficult to make a sustained, significant positive contribution to UK growth in the near term at least, given muted domestic demand in the eurozone and the strength of sterling.”
“For now the onus remains firmly on domestic demand to keep the UK’s economic recovery chugging along” he said. The ONS said the £400m jump in imports of aircraft parts was the main driver of the widening deficit.
That view was echoed by Howard Archer of IHS Global Insight who said: “Net trade will likely find it difficult to make a sustained, significant positive contribution to  UK growth in the near term at least, given muted domestic demand in the  eurozone and  the strength of sterling.” Exports of goods to countries outside the European Union crept up by £200m in May, but by less than the value of imports, widening that element of the deficit to £4bn. Analysts had predicted a contraction to £3.4bn. Including the UK's traditional surplus on services, the total deficit widened to £2.4bn, up from £2.1bn in April.
Exports of goods to countries outside the European Union crept up by £200 million in May, but by less than the value of imports, widening that element of the deficit to  £4 billion. Analysts had predicted a contraction to £3.4 billion. The value of sterling, weighted by our major trading partners, has increased by 14 per cent since the recovery began in early 2013, as analysts have priced in an earlier interest rate rise by the Bank of England.
The trade-weighted value of sterling has increased by 14 per cent since the recovery began in early 2013 as analysts have priced in an earlier interest-rate rise by the Bank of England. The pound edged lower against the dollar today.
Over the three months to May, goods exports were up just 0.1 per cent to  £72.6 billion, while imports rose 0.5 per cent to £98.9 billion, giving a quarterly deficit of £26.3 billion.
The overall current-account deficit hit £71.1 billion in 2013, equivalent to 4.4 per cent of GDP and the highest share since the late 1980s.