U.K. Goods-Trade Gap Widens to Record as Exports Fall: Economy

Britain’s trade deficit widened to a record in the second quarter as the impact of the euro-area debt crisis and cooling global growth sapped demand for exports.

The goods-trade gap increased to 28.3 billion pounds ($44.3 billion pounds) from 25 billion pounds in the previous quarter, the Office for National Statistics said today in London. Exports fell 4.9 percent, while imports slipped 0.5 percent. In June, the deficit widened more than economists forecast to 10.1 billion pounds, partly due to the impact of public holidays.

The report follows comments from the Bank of England yesterday that the pound’s appreciation over the past year may hamper exports at a time when slowing global expansion is undercutting demand. The U.K. economy shrank 0.7 percent in the second quarter, and the central bank cut its growth forecasts, citing the turmoil in the euro area, Britain’s biggest trading partner, and the government’s fiscal squeeze.

“We’ve seen signs of slower growth more generally across the world, not just in the euro zone, and that seems to be affecting the U.K.,” said Vicky Redwood, an economist at Capital Economics Ltd. in London and a former central bank official. “The main risk to the U.K. export market is still from Europe. The economy will recover in the third quarter, but there’s still a risk of a triple-dip recession.”

The pound has risen about 3.4 percent this year on a trade- weighted basis. It’s still down about 20 percent since the start of 2007. Against the euro, sterling has appreciated about 5.4 percent in 2012.

Dismal Outlook

In the second quarter, exports to Germany, the euro area’s largest economy, fell 525 million pounds compared with the first three months of the year, the statistics office said. Sales to the Netherlands plunged 819 million pounds, while exports to the U.S. fell 428 million pounds. By category, the biggest declines were in exports of chemicals and cars.

Barclays Plc economist Blerina Uruci said the outlook for exports “seems rather dismal and the prospects for any material rebalancing of the economy are not encouraging.”

The June deficit compared with economists’ forecast for 8.73 billion pounds, based on the median of 22 estimates in a Bloomberg News survey. Exports dropped 8.4 percent in June from May, while imports fell 1.2 percent. There was an additional public holiday in June for the queen’s Jubilee that the statistics office said “may have affected” the data.

There was a 5.81 billion-pound surplus on services in June, which left the total trade gap at 4.31 billion pounds. That’s the most since records began in 1997. Britain’s goods deficit with the European Union widened to 4.94 billion pounds in June from 4.49 billion pounds. The gap with non-EU nations was 5.18 billion pounds.

U.S. Trade

The U.S.’s trade gap probably narrowed in June as less expensive oil helped cut the nation’s import bill, economists said before a report today. The deficit shrank to $47.5 billion from $48.7 billion in May, according to the median forecast of 69 economists surveyed by Bloomberg. A separate report may show initial jobless claims rose.

Elsewhere, Chinese inflation eased to 1.8 percent in July and factory output increased the least since 2009, the country’s National Bureau of Statistics said. Separately, the Bank of Korea said inflation will stay subdued, and the Bank of Japan (8301) anticipated that its benchmark gauge of prices will remain unchanged “for the time being.” That indicates scope for monetary stimulus should the European crisis deepen.

Rates Unchanged

The Bank of Korea kept borrowing costs at a 14-month low of 3 percent today after a surprise cut in July. Indonesia also decided to hold its benchmark interest rate today. The State Bank of Pakistan is scheduled to decide on borrowing costs tomorrow.

The Bank of England increased its bond-purchase program by 50 billion pounds to 375 billion pounds last month and started a program to boost credit. It said yesterday that if the pound continues to strengthen that “could make it harder for British producers to compete in world markets.”

Separate data today showed Australia’s economic resilience continues, with employers there boosting payrolls last month, sending the unemployment rate down.

Still, an Indian government report showed industrial production in Asia’s No. 3 economy fell for the third time in four months, with output of capital goods plunging the most on record. Production declined 1.8 percent from a year earlier, compared with economists’ forecast for a 0.4 percent gain.

“Growth in much of emerging Asia has been slowing for some time,” Daniel Solomon, economist at the Centre for Economics and Business Research in London, said in a research note. For the U.K., “subdued export growth seems likely in the short term given the combined challenges facing the global economy.”

To contact the reporter on this story: Jennifer Ryan at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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