UK Trade Deficit Narrows In August

Oct 9, 2007 - UK's trade deficit contracted to 4.1 billion pounds in August from a deficit of 4.6 billion pounds in July, the Office for National Statistics, ONS, said on Tuesday. In the three months to August, trade deficit grew marginally to 12.3 billion pounds after posting a deficit of 12.2 billion pounds in the previous three months.

UK's deficit on trade in goods narrowed to 6.9 billion pounds in August, from the deficit of 7.4 billion pounds revised up from 6.8 billion pounds in July. Economists were expecting a deficit of 7 billion pounds.

The trade deficit with non-EU countries was 3.9 billion pounds in August, a little less than economists' consensus of a 4 billion pound deficit. In July the deficit was 4.4 billion pounds, revised up from the deficit of 4.2 billion pounds in the first estimates.

Total exports of goods grew 0.5% in August, to 19 billion pounds while imports eased 2% to 25.8 billion pounds. Exports to the EU were little changed, while imports from the EU slipped 0.5%. Exports to non-EU countries rose 1.5%, helping to narrow the trade deficit, while imports from non-EU countries dropped 3.5%.

Though monthly data are volatile, the latest estimate of the trends indicated that the goods deficit with the whole world was fairly flat, the ONS said.

In the three months to August, the deficit on trade in goods declined 0.1 billion pounds to 20.8 billion pounds. Exports climbed 5.5%, while imports grew 3.5%.

Compared to July, the volume of exports increased 3.5%, while imports declined 2%, in August. Both export and import prices slipped 0.5%.

The balance on trade in oil showed a deficit of 0.5 billion pounds in August, more than the 0.3 billion pounds deficit in July. This was the highest deficit in more than a year, according to the ONS.

In the three months to August, exports of all the main commodity groups showed a rise in volume except fuels, the ONS said. Exports of manufactured products like cars climbed 11%, while exports of capital goods and exports of consumer goods other than cars, posted 9.5% growth each. Exports of chemicals grew 3.5%, while exports of semi-manufactured goods advanced 2.5%.

Imports of all commodity groups except fuels increased in the three months to August. Imports of manufactured products such as cars jumped 9.5%, while imports of consumer goods other than cars grew 6.5%. Imports of capital goods advanced 4.5%, while imports of chemicals expanded 10% and imports of other semi-manufactured goods grew 1.5%.

Exports of goods to the U.S.A. rose 0.6 billion pounds in the three months to August, while export of goods to France increased by 0.5 billion pounds. Imports of goods from the U.S.A. rose 0.4 billion pounds while imports from Canada advanced 0.2 billion pounds. Import of goods from Norway and China eased 0.2 billion pounds.

In August, UK's trade in services registered a surplus of 2.7 billion pounds, a tad lower than the surplus of 2.8 billion pounds in July.

The surplus on trade in services was 8.5 billion pounds in the three months to August, compared to the surplus of 8.7 billion pounds in the previous three months. Exports of services declined 0.6 billion pounds to 33.4 billion pounds, while imports of services slipped 0.3 billion pounds to 24.9 billion pounds.

The trade figure came as no surprise even though the pound has soared to historic highs in recent months, making exports uncompetitive and imports cheaper. A down side of the current financial market crisis was that UK's services exports which consisted of a big chunk of financial services, could be hit. The UK Services Purchasing Manager's Index, PMI, fell to a 13-month low reading of 56.7 in September. Activity and new orders were weaker in the financial intermediation industry than previously.

BNP Paribas forecast that the UK economy would grow 2.8% in both 2007 and 2008. The trade deficit for the full year 2007 was projected at 77.6 billion pounds, rising to 87.1 billion pounds in 2008. The current account deficit was forecast at 47.8 billion pounds in 2007, or 3.7% of GDP.

The economy is now operating at close to or even above potential, BNP Paribas said. However, following the turbulence in the financial markets, the outlook had deteriorated and economic growth was likely to slow in the coming quarters, according to BNP Paribas.