Economic recovery likely to remain largely domestic affair - EY ITEM
14 March 2014
- Widening in January’s trade deficit dents hopes for rebalancing
- Export surveys offer a more positive message
- But economic recovery likely to remain a largely domestic affair
Andrew Goodwin senior economic adviser to the EY ITEM Club, comments on today’s UK trade data:
“Following an unexpectedly small trade deficit of £0.7bn in December, we have seen this widening to £2.6bn in January. This suggests that a rebalancing towards export-led growth continues to remain a distant prospect. Exports of goods fell by a sizeable 4% month-on-month in January, partly reflecting falls in chemicals and aircraft, sales of which can be volatile.
“Meanwhile, imports increased by 3.4%, but stripping out erratic factors – defined as ship sales, aircraft, precious stones and silver – import growth was a more modest 1.2%.This suggests the consumer recovery is not yet sucking in imports at a particularly rapid rate. The less volatile three month-on three month data showed imports down by 3%.
“Looking forward, recent survey data does point to an upturn in export growth. However, surveys of export orders have tended to represent a much brighter picture than the official data in recent months.
“Overall, we think that the recovery is set to remain a largely domestic affair. On the horizon, activity is picking up in the UK’s main export markets, with expected sales into faster-growing emerging markets. But, the ongoing strength of sterling won’t help. Domestic demand will eventually rise at a healthy pace, and we expect growth in imports to pick up, cutting any support to the economy from net trade.”