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March 14, 2014 10:58 am
A sharp fall in exports widened Britain’s trade deficit in January and underlined that the country’s recovery remains reliant on domestic demand.
The overall trade deficit was £2.6bn in January, up from £0.7bn in December. The deficit in goods expanded from £7.7bn to £9.8bn.
The UK’s monthly trade data are notoriously volatile, but the underlying pattern has been of a stubbornly wide deficit over the past few years in spite of a sharp fall in the value of the pound after the financial crisis. The monthly goods deficit has bounced around between £7bn and £10bn since 2010.
The failure of exports to expand after the crash has disappointed and frustrated policy makers. Mark Carney, the governor of the Bank of England, has said the recovery will only be sustainable when net exports and business investment also start to pick up.
In January, exports fell 4 per cent and imports rose 1.7 per cent, after stripping out large erratic items such as aircraft. Exports fell by equal amounts to both EU and non-EU countries.
George Osborne’s fifth Budget is expected to contain measures to help those low and middle income families most likely to be affected by the prospective rise in interest rates
Samuel Tombs, an economist at Capital Economics, said the sharp monthly fall in exports could be a sign that the 10 per cent increase in the value of the pound over the past year was “starting to have an adverse effect on the UK’s economic recovery.”
In a speech last week, Charlie Bean, the BoE’s deputy governor for monetary policy, warned that a further rise in the pound would hinder efforts to boost exports and rebalance the economy.
There was better news from the construction sector, which accounts for about 6 per cent of the UK economy.
Official statistics on construction output showed the value of work rising 1.8 per cent in January on the previous month, and 5.4 per cent on the previous year.
The ONS said this growth “was strongly supported by public and private new housing”, with rising house prices supporting the pick up in housing construction. The increase in the new order component of 1.5 per cent in Q4 2013 was “solely attributable” to new housing. All other work, which is twice the size of new housing, fell by 0.4 per cent during the same period.
Additional reporting by Emily Cadman
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