Trade to Contribute to U.K. Growth Despite May Export Slump

  • Deficit widended to 2.3 billion pounds as exports drop 4.4%
  • Weaker pound may help to boost exports in coming months

Trade appears set to make a rare contribution to U.K. economic growth in the second quarter despite a sharp decline in exports in May.

Figures published by the Office for National Statistics Friday showed the deficit in goods and services widened to 2.3 billion pounds ($3 billion) from 2 billion pounds in April. Exports fell 4.4 percent, with shipments of goods alone dropping 8.2 percent. Total imports declined 3.5 percent.

It still leaves the shortfall for the quarter on course to come in well below the 12 billion pounds between January and March. The trade deficit will narrow unless June sees a gap of 7.8 billion pounds, a level never registered in any month on record.

As the shock vote to leave the European Union hits consumer confidence and threatens business investment, trade -- a consistent drag on growth -- may emerge as a bright spot if the sharp fall in sterling boosts demand for British exports. The risk is that key markets in the EU weaken in response to Brexit. The pound’s depreciation will also push up the value of imports.

The currency has fallen 13 percent against the dollar since the June 23 referendum to its lowest levels in 31 years. It was at $1.2931 as of 10:06 a.m. London time, up 0.2 percent on the day.

Cost Pressures

Friday’s figures add to evidence that the economy performed fairly well in the months before the vote, though sentiment weakened in June and has turned down sharply since the result. Growth may have accelerated to 0.6 percent in the second quarter from 0.4 percent in the first, the National Institute of Economic and Social Research estimated on Thursday.

“Along with healthy retail sales in May and April, and much improved industrial production overall in May/April, the trade data suggest that U.K. GDP growth could actually have improved in the second quarter despite the heightened uncertainty over the EU membership referendum and likely markedly weaker activity in June,” said Howard Archer, chief economist at IHS in London.

In May, sales of goods to the EU, the destination for almost half of British exports, fell 2.5 percent. Shipments to countries outside the bloc dropped 13 percent. It followed a sharp increase in exports in April and left the overall deficit in goods higher on the month at 9.9 billion pounds.

Separate figures show cost pressures in the labor market picked up in the first quarter, though not to a level that may worry the Bank of England. Unit labor costs rose an annual 1.9 percent compared with 1.5 percent in the previous three months. Productivity measured by output per hour climbed 0.4 percent.

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