World Economy

UK Trade Deficit Widens to Hit New Record

While the export of goods in August  was 0.7% up on the previous month,  imports rose by 4.2%.While the export of goods in August  was 0.7% up on the previous month,  imports rose by 4.2%.

The UK’s goods trade deficit with the rest of the world hit an all-time high of £14.2 billion ($18.73 billion) in August, according to official figures. The Office for National Statistics said the gap widened from a revised figure of £12.8 billion in the previous month.

Economists had predicted the figure to fall back, but the data showed a surge in the import of chemicals, machinery and clothing, Skynews reported.

It is a worrying statistic given evidence—in closely watched surveys of the manufacturing sector—that export orders and output were flourishing at the time.

The fall in the value of the pound since the Brexit vote has made British-made goods more attractive to overseas buyers, though the most recent activity reports pointed to a loss of momentum in September.

The ONS continued to paint a more gloomy picture. It said that while the export of goods in August was 0.7% up on the previous month, imports rose by 4.2%—the biggest leap since March. Wider figures showed that manufacturing output rose 0.4% month on month—matching July’s performance.

Sterling was up slightly versus the dollar after the figures were released—suggesting investors saw nothing in the data to spook Bank of England policymakers.

The bank has signaled it is on track to raise interest rates from their post-Brexit vote low of 0.25% to 0.5% in November. Such a move, which is aimed at helping to counter rising inflation, will also give it some more wriggle room when trying to mitigate any financial shocks as the UK continues efforts to negotiate the terms of its divorce from the EU.

The pound, which was trading as high as $1.36 last month on the back of rising interest rate expectations, has faced pressure in recent weeks from a recovering dollar and concerns about the stability of Theresa May’s premiership. It was trading at $1.32 by late Tuesday morning.

There had been hopes that the major fall in the pound in the wake of the Brexit vote in 2016 would boost manufacturing exports, helping to bring down the UK’s chronic trade in goods deficit.

But, so far, such hopes have been disappointed, as import values have risen in line with exports and UK firms seem not to have seized the opportunity of the more competitive exchange rate to increase their market share abroad.

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