Car scrappage scheme boosts imports - Ernst & Young - United Kingdom

• It is surprising to see the trade gap worsen, particularly given the weakness of sterling
• The car scrappage scheme is pushing up imports considerably and having an adverse impact on the trade data
• We expect a gradual improvement in the goods balance.
• The economy is heavily reliant on exporters to provide the momentum to drive the UK recovery

"After seeing stronger exports in July and August, it is surprising to see the trade gap worsen, particularly given the weakness of sterling.

"However, the car scrappage scheme, which is helping to boost UK manufacturing, is also pushing up imports considerably, and so having an adverse impact on the trade data. Imports of cars were up £432m, while exports were up just £8m.

"Once this effect wears off, we expect a gradual improvement in the trade balance. Indeed, we find it difficult to find any compelling argument that sterling will strengthen in the foreseeable future, so UK exports should remain competitive in global markets.

"With consumers and businesses still facing significant headwinds, the economy is heavily reliant on exporters to provide the momentum to drive the UK recovery.

"Looking further out the UK economy needs to rebalance towards exports and away from a dependence on consumer spending, a process for which a weak pound will provide some assistance, though this will be a long haul."