Economic recovery likely to remain largely domestic affair - EY ITEM

14 March 2014

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  • 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.”