The recent fall in oil prices has contributed to a dramatically improved trade balance, however higher pound and fall in exports to the rest of Europe has significantly limited any gain.
The UK’s trade balance improved at the start of this year after a sharp fall in oil prices dramatically reduced the cost of imports. However the higher pound and a fall in exports to the Eurozone have limited the gains experienced from cheaper energy supplies. The total deficit shrank to £616m from £2.14bn in December after an increase in services trade was offset by a better than expected picture of the trade in goods.
In the three months to January the deficit on trade in goods and services was £4.4bn, which was the smallest since October 2000. The economists had forecast a deficit of £9.7bn in the goods trade balance, only for cheaper oil to reduce the gap to £8.4bn.
Chris Williamson, UK Economist at financial data provider Markit, said that while the headline deficit had reduced, the core figures echoed a gloomier outlook for the export of goods and services despite the government’s efforts to rebalance the financial services. He continued “the export trend for manufacturers has weakened showing that the strong pound is affecting demand for UK goods in markets abroad. Further export losses in coming months are imminent, showing more doubt for hopes that the UK economy is reducing domestic consumption on exports”.
Chief economist at the British Chamber of Commerce David Kern stated that in order to sustain recent improvements the government and the Bank of England’s monetary policy committee must do all they can to rebalance the UK economy towards increasing exports whilst simultaneously reducing reliance on imported goods.