Shrinking of trade deficit points to weak imports not export strength - EY ITEM

9 April 2014

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  • Shrinking of the trade deficit is more a function of weak imports than export strength
  • The official export data continues to lag well behind the surveys
  • The economic recovery will remain reliant on domestic demand

Martin Beck senior economic adviser to the EY ITEM Club comments on today’s trade data:

“While in the three months to February the trade deficit almost halved compared with the previous three months, this largely reflected a contraction in imports rather than the exporting virility of the UK. We seem to be on track for a pretty disappointing performance by UK exporters for Q1 as a whole. Perhaps we should not have got our hopes up after seeing a more balanced growth profile in Q4 2013. However, the business survey data has been markedly stronger - not least yesterday’s BCC survey – so the official data could be revised up.

“With demand in some of the UK’s key trading partners set to accelerate through 2014, we should see a rise in demand for British goods and services over the year. But UK firms remain hamstrung by the strength of the pound which, if sustained, will erode their competiveness on the global stage.

“And with domestic demand expected to remain solid in the coming quarters, imports are likely to remain sizable, underlining the difficulty of reducing the size of the UK trade deficit. It seems that in the near-term, domestic demand will continue to do the heavy lifting for the UK economic recovery.”