The UK’s deficit on trade in goods and services narrowed by £1.1bn in July, official figures reveal, giving renewed hope to British exporters in the wake of the Brexit vote.
According to the latest data from the Office for National Statistics (ONS), the UK trade deficit fell from £5.6bn in June to £4.5bn in July 2016. The narrowing trade gap was driven by a boost in British goods exports, which jumped by £0.8bn, or 2%, while imports dropped by 3.6%. The figures reflect a rise in the export of ships and fuel, and minor increases in food, beverages and tobacco and machinery, the ONS says.
The plunge in the value of the pound following the UK’s vote to leave the EU on June 23 seems to have been helping British exporters. In July 2016, the sterling Exchange Rate Index (ERI) was 15% lower compared with the same period last year, making UK goods more competitive on the global market.
But the ONS says it is too soon to draw firm conclusions. “As monthly data can often be volatile, it is unclear whether this is an impact of the depreciation of sterling, and it is necessary to look at the trend over the next few months to get a clearer picture,” the ONS report states.
Geoffrey de Mowbray, joint chairman at British Exporters’ Association (BExA), tells GTR that the new figures are highly encouraging, and the drop in the sterling has without doubt been a contributing factor.
“The energy around exports is building both in the Department of International Trade and in the industry,” he says. “It is important these energies are now channelled to ensure success. There are many risks associated with Brexit for exporters not least uncertainty around documentation going forward, but the opportunities are immense particularly with existing trading partners outside of the EU and others, such as the commonwealth.”
The figures give new hope that the UK’s GDP will continue to grow in the midst of fears that the country would stumble into a recession. Yet, on Monday, just a few days after the ONS released its data, the British Chambers of Commerce (BCC) published its first economic forecast since the EU referendum, in which it downgraded its GDP growth predictions from 2.2% to 1.8% this year. It also reduced its growth forecast from 2.3% to 1% in 2017 and from 2.4% to 1.8% in 2018.
In a statement, the chamber says individual businesses continue to report strong trading conditions, and that the new figures indicate that the UK is likely to avoid a recession.
“On the upside, the UK’s net trade position is expected to be boosted by the post-referendum slide in the value of sterling,” says Suren Thiru, BCC’s head of economics. But despite good news in a time of recession fears, he says the new data confirms the British economy “is set to enter a turbulent period”.
“The significant imbalances currently facing the UK economy are expected to persist through the forecast period, with a continued over-reliance on services and consumer spending as key determinants of UK economic growth,” he says.
Thiru adds that growing uncertainty is likely to put a brake on investment, while rising inflation and weaker labour market conditions are expected to stifle consumer spending.
“While the longer-term outlook for the UK economy is highly uncertain, the risks are on balance tilted to the downside, with the deep-rooted structural issues, such the size of the UK’s current account deficit, leaving the UK increasingly exposed to economic shocks,” he says.