Listen to this article
The UK’s trade deficit expanded in March, the Office for National Statistics said today, with the slide in sterling over the past year continuing to jack up both import and export prices.
In its latest assessment, the ONS said the total trade deficit almost doubled from the final quarter of last year to the first quarter of 2016, reaching £10.5bn after a “sharp narrowing” at the end of last year.
A shift from February to March accounted for a large chunk of that widening, though as usual, the ONS recommended focusing on less volatile quarterly changes.
The ONS said:
The main causes of the widening of the deficit in Quarter 1 2017 were increased imports of machinery and transport equipment (mainly mechanical machinery and cars), oil and chemicals; these commodities also contributed the most to the increase in imports in March 2017.
The drop in sterling since last June is “applying upward pressure on prices”, it added.
Again, it warned that the drop in the pound is not necessarily a clean boost for UK exports;
If a sterling devaluation leads to improved price competitiveness of UK exports, they may become more attractive to the rest of the world. This effect is likely to be subtle and could take longer to feed through, as companies may find it difficult to make major changes to supply chains.
However, in practice, the impact of a sterling change is likely to be much more complex. Some companies may hedge against currency movements in the short- to medium-term. In addition, evidence suggests that a high proportion of UK imports are traded in foreign currency, while some UK exports are traded in sterling, so there will not necessarily be a straightforward pass through from the changes in the value of sterling to the value of trade.