News

UK trade deficit widens

The UK trade deficit worsened from £8.58bn in the third quarter, to £10.35bn in the fourth quarter of 2015, as the slowdown in emerging markets growth and depressed oil prices hit exports.

In total, the trade deficit for 2015 was £35bn, as the trade in goods deficit widened to £125bn – the largest goods deficit on record (1). However, 2015 saw a record surplus in the services sector at £90bn (2), showing that UK economic growth is increasingly reliant on the already dominant services sector.

Howard Archer, Chief UK Economist at IHS Global Insight, said: “UK exports have clearly struggled in recent months, as they have been hampered by sterling’s overall strength in 2015, particularly against the euro, and moderate global demand” (3).

The Office for National Statistics have confirmed that the deficit will likely affect UK economic growth when revised GDP growth figures are released.

Paul Hollingsworth, of Capital Economics, noted that the UK “is clearly not immune to a weaker external environment”, and that any progress made in reducing the deficit “is likely to be extremely slow in the near term, leaving the recovery reliant on domestic demand” (4).

Allie Renison, Head of Trade Policy at the Institute of Directors, said the broadly flat deficit was “unsurprising, given the sharp fall in the price of oil, which knocked British exports and made imports a little cheaper”.

“Since the fall in the oil price should still be a net win for the UK economy, we should not be disproportionately concerned about the adverse effect this has on areas like our trade balance,” Renison added (4).

Finance Minister, George Osborne, has warned that the economy faces a “dangerous cocktail” of risks from overseas in 2016 (1).

Hollingsworth countered that he believed concerns about a sharp global slowdown were “somewhat overdone” (2).

 

(1) Reuters UK. ‘UK trade deficit widens in fourth quarter, likely dragging on economic growth’. uk.reuters.com

(2) BBC News. ‘UK goods trade gap biggest on record’. bbc.co.uk

(3) The Guardian. ‘UK trade deficit widens further as exports suffer’. theguardian.com

(4) Telegraph. ‘UK’s rising trade deficit sparks fears of drag on economic growth’. telegraph.co.uk