UK trade deficit narrows to defy downturn fears

The UK economy continued to defy predictions of a post-referendum downturn with official figures showing a narrowing trade deficit and, in a separate report, a manufacturing sector growing faster than expected.

Relocate Editorial

10 February 2017

Data from the Office for National Statistics (ONS) showed that, while exports to the EU increased steadily in Q4, they rose sharply to countries elsewhere in the world, resulting in a £5.6 billion drop over the period – to £8.6 billion – from the third quarter.Over the year, however, the trade deficit actually rose to £39.4 billion on the back of a large rise in imports and despite a £1.1 billion rise in financial services exports and a £4.8 billion increase in exports of other professional services, such as legal, accounting, consulting and research.

Increase in export to non-EU countries

Mike Spicer, director of economics at the British Chambers of Commerce, commented, “The narrowing in the UK’s trade deficit in the final months of last year is a welcome improvement from the weaker performance in the previous quarter, and reflects a growing number of goods being exported to non-EU countries. As Brexit dominates the headlines, the results are an important reminder that UK companies take advantage of trading opportunities in every part of the world.“This performance comes despite the mixed reaction of exporters to the depreciation in sterling – which our research has found is hurting as many as it is helping. Looking ahead, the continued weakness of the pound and the expected slowdown in economic growth will likely dampen demand for consumer imports.”

Weaker pound not affecting trade balance

Kate Davies, ONS senior statistician, said increases in exports of oil and aircraft had helped the trade gap narrow and added, “While both exports and imports grew over 2016, there remains little evidence that the weaker pound has had an effect on the trade balance.”Meanwhile, in a second report, the ONS revealed that both the manufacturing and construction sectors had rounded off 2016 with robust – and unexpected – growth. Construction output beat expectations to rise by 1.8 per cent in December, up from 0.4 per cent the previous month, while manufacturing output grew by a higher-than-expected 2.1 per cent in the final month of the year. However, the ONS warned that December's figure was boosted by output from the “volatile”pharmaceuticals sector.

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Howard Archer, chief UK and European economist at IHS Global Insight, commented: “A hat-trick of good news for the UK economy – that point to the economy firing on several cylinders at the end of 2016, and not just reliant on services and consumer spending.”However, he noted a “major concern” in the data was a sharp rise in the price of imported goods, which were up 9.1 per cent in December from a year earlier, mainly as a result of sterling's fall. “This reinforces our belief that consumer price inflation is headed for three per cent before the end of 2017,” he said.For related news and features, visit our Brexit section.Access hundreds of global services and suppliers in our Online Directory Subscribe now to our Global Mobility Toolkit

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