By Bob Duncan
Britain’s trade deficit has ballooned to its highest level since modern records began following a sharp drop in exports.
A sharp rise in the deficit dealt a fresh blow to recovery hopes as a former deputy governor admitted the Bank of England was “clumsy and slow” in its initial response to the economic crisis.
The goods and services deficit – the gap between imports and exports – rose to £4.3 billion from £2.7 billion in May, the Office for National Statistics said, the highest level since comparable records began in 1997. The gloomy figures have dampened hopes of a UK recovery.
The rumbling crisis in the eurozone, the destination of about 40 per cent of the UK’s exports, has been compounded by slowing growth in the US and emerging markets such as China.
Exports to every one of the UK’s ten biggest export markets fell between the first and second quarters of the year, according to John Zhu, an economist at HSBC. Exports to countries outside Europe fell 8.6 per cent between May and June, exacerbated by lower car exports to China, which outstripped the 6 per cent fall in exports to Europe.
The UK figures prompted calls for the government to provide more help for exporters struggling to cope with weakening global demand for their products.
The British Chambers of Commerce (BCC) called on the business secretary, Vince Cable, to boost infrastructure spending, create a new investment bank and assist with trade finance after the latest official figures showed the gap between imports and exports widened from £2.7bn to £4.4bn in June.
David Kern, the BCC’s chief economist, said: “British exporters have untapped potential to expand, but they need more government support to help them compete globally and diversify towards growing markets outside the EU. We need firmer action in key areas such as trade finance, promotion and insurance. More infrastructure spending and the early creation of a business bank would make a major contribution towards stronger growth in UK exports.”
Labour also seized on data from the Office for National Statistics (ONS) showing that the value of UK exports of goods and services fell by 4.6% between May and June while imports declined by 0.7%.
The shadow business secretary, Chuka Umunna, said: “The Business Department has failed to adequately help firms which want to export, in particular small companies. It speaks volumes that the government’s finance scheme to boost exports only helped five firms before being quietly dropped.”
Umunna added that the government’s promise of an export-led recovery had been “shattered” by the figures and called on ministers to adopt “industrial strategies across the board”.
The news comes on the back of depressing GDP figures and a slashing of UK growth forecasts by the Bank of England. The Bank of England revealed on Wednesday it is now expecting zero UK growth in 2012 as a whole. The current UK recession, now officially in double dip, is the worst in over 50 years.
The UK economy sank deeper into recession in the second quarter after the economy shrank by 0.7%. Economists said net trade was probably a major drag on GDP over the period.
In Scotland, Government Ministers have been calling for months for Westminster to increase capital spending on infrastructure to boost the economy. In particular, they are asking for funding to be released for “shovel ready” projects which could commence immediately and provide a welcome boost to the struggling construction sector.
The ONS said the UK trade deficit was the largest since comparable records began in 1997. It was made up of a £10.1bn deficit in trade in goods, offset by a £5.8bn surplus in services.
City analysts said the figures were poor even when allowing for the disruption to business caused by the extra bank holiday in June to celebrate the Queen’s diamond jubilee.
They noted that the trade gap for the second quarter – a better guide to the underlying trend than one month’s figures – increased from £7.8bn to £11.2bn, enough to wipe a percentage point off economic growth. In the three months to June, the value of exports was down by 2.7% while imports were flat.
Chris Willliamson, economist at Markit, said: “The fall could perhaps be in part blamed on the disruption to shipments caused by extra holidays for the Queen’s jubilee, but there is clearly an underlying trend of worrying weakness in overseas demand.” He added that the fall in exports in the second quarter was the biggest since 2006.
Vicky Redwood, UK analyst at Capital Economics, said that if the extra bank holiday had affected shipments through UK ports, it should have affected imports as severely as exports. “And previous extra bank holidays have not had that big an impact. In June 2002, the month of the golden jubilee, the deficit widened by only £0.4bn.”