The latest data, published by the Office for National Statistics (ONS) in February 2014, suggests that the UK’s monthly trade deficit narrowed sharply to £1.0 billion in December 2013 from £3.6 billion in November.
The total exports of goods and services for the month amounted to £41.5 billion compared with imports of £42.5 billion. The UK still runs a large deficit in goods each month (around £7.7 billion) alongside a surplus in services (of £6.6 billion).
International trade figures are notoriously volatile – in June 2012 the monthly deficit was £3.3 billion before narrowing to £0.9 billion in July only to widen again to £3.3 billion in August (and those are seasonally-adjusted) – but what we are seeing is a persistent deficit in goods averaging more than £7.0 billion in the last decade or so.
None of this is good news for those who hope for a rebalanced economy, with less reliance on consumption & services and a greater contribution from manufacturing & exports.
What is baffling is that the precipitous fall in sterling’s trade-weighted value during the credit crisis has not better supported UK exporters. Between July 2007 and December 2008 sterling lost around 30% of its value when compared with a basket of other important trade currencies (the US dollar, euro, yen and Canadian dollar). In 2007 the monthly deficit in goods averaged £7.5 billion compared with nearly £7.9 billion in 2008, £6.9 billion in 2009 and £8.2 billion in 2010.
Perhaps the trade deficit might have widened further had it not been for the sharp depreciation in sterling which coincided with dramatic declines in economic output among our main trading partners – notably Ireland & the rest of the EU and the USA.
Sterling has bounced back with some vigour from the 2008 low; now 17% higher than then but still around 18% lower than it was prior to the crisis. With luck, sterling’s recent gains will moderate. Perhaps then we will see a lasting improvement in the trade deficit for goods. Of course that is contingent on continued expansion in the US and some kind of sustained recovery in the EU.