Export orders for UK goods bounced back in February while imports declined, leading to a surprise narrowing of the trade deficit after adverse weather disrupted shipping and sent the deficit sharply wider at the start of the year.
The seasonally adjusted trade in goods showed a deficit in February of £6.2bn compared with a shortfall of £8.1bn in January, according to the Office for National Statistics. February’s deficit was also below forecasts, which averaged £7.3bn.
Economists have been looking for signs that the weak pound would make UK goods more attractive in foreign markets, boosting exports. Although exports have been rising, imports have been rising too, widening Britain’s trade deficit.
As yet, there is little sign that households and businesses are choosing cheaper domestic goods at the expense of more expensive imported ones.
“Finally some good news on UK trade, with February’s figures suggesting that the sharp widening in the trade deficits at the start of the year was just a temporary result of the poor weather,” said Vicky Redwood, economist at Capital Economics.
Ms Redwood noted that the deficit in traded goods was the smallest since June 2006.
Excluding oil and other items with erratic prices, the seasonally adjusted volume of exports was 6.3 per cent higher in February compared with January, while the volume of imports was 1.4 per cent lower.
However, economists noted that trade data are notoriously volatile.
Moreover, unusually harsh weather in January was likely to have created difficulties for exporters, while imports could largely continue to arrive in Britain. Therefore, the bounceback in February, while larger than forecast, should not be regarded as the harbinger of an export revival. “The level of exports was basically unchanged from December,” said Colin Ellis, economist at Daiwa Europe, noting that it did little more than reverse the decline in January.
A genuine pick-up in exports would have to do more than that. The data show that the index of total exports, at 95.3, is still lower than at any time since October 2008. Imports of goods have declined, both from January and from December levels.
The latest data underscore the greatest challenge for UK exporters – the eurozone’s economic woes.
Exports to the eurozone were up 3.1 per cent by value in February from January, while exports to the rest of the world outside the EU rose by 15.1 per cent.
The figures also show that the nascent economic recovery in the US is providing some benefit to UK exporters.
Exports in the three months through February were up 6.9 per cent from the previous three months, while imports were up a more modest 3.5 per cent.
Howard Archer, economist at IHS Global Insight, pointed to the continued woes of the UK’s main trading partner, the eurozone. Although exports to European Union countries were up 5.1 per cent in February from January, goods exports to the rest of the world rose by 15.1 per cent.
“The trade data ease concerns that net trade will have been a significant drag on the economy in the first quarter of 2010,” Mr Archer said, noting that in the fourth quarter of 2010, net trade subtracted 0.2 percentage points from GDP growth. “However, much will depend to what extent UK exporters use the more competitive pound to lower prices and try to boost market share in overseas markets and to what extent they keep prices up and use the weaker pound to boost their profit margins,” he said.
Measured by value, total exports rose by £1.8bn – 9.5 per cent – while imports fell by less than £0.1bn – or 0.1 per cent. Richard McGuire, economist at RBC Capital Markets, noted that the month-on-month surge in exports was the largest since January 2003.