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UK trade gap widened to £4.7bn in August despite weaker pound

Published 07/10/2016

The figures showed that imports rose by £2.6 billion, while exports only grew by £100 million
The figures showed that imports rose by £2.6 billion, while exports only grew by £100 million

Britain's trade gap widened in August, despite hopes that a weaker pound had been boosting exports in the wake of the Brexit vote.

The Office for National Statistics (ONS) said the UK's deficit on trade in goods and services hit £4.7 billion in August, missing economist forecasts for £4 billion, widening by £2.5 billion from July.

The figures showed that imports rose by £2.6 billion, while exports only grew by £100 million.

It comes despite hopes that the post-referendum slump in sterling would help support Britain's export industry.

Sterling has fallen to fresh three-decade lows this week to trade near 1.242 against the US dollar and 1.117 against the euro in Friday morning trade.

Theoretically, a weaker pound should make British goods less expensive and more competitive on the international stage.

"But in general, a close long-run relationship between export and import prices is to be expected, as other factors such as raw material and labour prices are also significant price drivers and tend to move in the same direction over a long time period," the ONS said.

The statistics noted that, while export prices grew at a faster rate than imports in August - up 0.7% and 0.1% respectively - it could be chalked up to a delayed reaction from July's import price rise, adding it was still "unclear" whether sterling depreciation had an impact.

Howard Archer, chief European and UK economist at IHS Markit, said: "After a recent stream of resilient, reassuring data and surveys on the UK economy, the August trade and industrial production data are somewhat disappointing."

Mr Archer said the data has "diluted hopes" that net trade would have made a positive contribution to third quarter gross domestic product (GDP), which he expects to grow by 0.4% from the previous quarter.

Britain's powerhouse service sector saw its trade surplus grow by £100 million to £7.4 billion in August, with exports estimated to have hit £19.3 billion.

But the sector-by-sector breakdown in goods trade paints a bleaker picture for Britain's widening trade deficit.

Good exports were supported by a £300 million rise in material manufacturers, a £100 million jump in chemicals, and a £200 million increase in aircraft exports.

However, that total was dragged down by a £300 million drop in ship exports and a £200 million fall in oil exports in August.

Meanwhile, machinery and transport equipment made up the bulk of August imports, rising £1.8 billion, while chemical and miscellaneous manufactures each rose by £300 million. Food , beverage and tobacco imports rose by £200 million and material manufactures grew by £100 million.

Goods exports to the EU dropped 0.6%, or £100 million, to £12.4 billion, thanks in part to a drop in exports to the Netherlands.

UK imports from the bloc rose 5.1%, or £1 billion, to £20.8 billion, as Britain bought more goods from Germany, France, the Czech Republic, Ireland, Italy, the Netherlands and Slovakia in August.

International Trade Secretary Liam Fox said: "While some sectors continue to perform well, there is still some way to go to ensure that we are exporting as much as we could and should do, so the Government will continue to encourage and support the wider range of exporting we require to boost our national prosperity."

Mr Fox earlier this week said that the immigration status of EU nationals living in Britain would be "one of our main cards" in the country's Brexit negotiations.

He also claimed that the UK would be able to secure international free trade deals after Article 50 is triggered simply by an "exchange of letters" with countries that already have agreements with the EU and would like to continue trading on similar terms.

Commenting on Friday's trade figures, he said: "We are working hard to ensure the UK remains an attractive place with which to trade and to help UK companies take advantage of the global demand for British goods and services."

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