UK trade deficit falls to lowest level in two years in May on big decline in imports, but analysts urge caution as exports remain flat

Published: 07:31 EST, 10 July 2015 | Updated: 07:47 EST, 10 July 2015

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Britain's trade deficit narrowed to its lowest level in nearly two years in May, pushed down by a fall in imports including ships, but exports remains flat which remains a cause of concerns for businesses.

The overall deficit fell to £393million in May, its lowest since June 2013 and well below April's revised deficit of £1.8billion and a six-month high of £3.2billion in March, according to the Office for National Statistics.

However analysts said the figures should be treated with caution given exports in May were flat, demonstrating that prime minister David Cameron's goal to make exports a bigger driver of the country's economy has not yet been fulfilled.

Sea change: Britain's trade deficit narrowed to its lowest level in nearly two years after a fall in imported ships

Howard Archer, at IHS Global, said: 'While May’s sharply reduced trade deficit is very welcome, it is disappointing that it was due to a marked 3.2 per cent fall in total imports while exports were only flat.

'In fact, exports of traded good excluding oil dipped 2.3 per cent month-on-month in May while exports of services only eked out a gain of 0.2 per cent.'

The improvement in May was a result of imports falling by £1.4billion to £32.6billion, the lowest level since April 2011, the ONS said.

Services: UK is still too reliant on retail and shopping

The most notable falls were imports of ships, which dropped by £0.5billion and imports of material manufactures which fell by £0.4billion.

A breakdown of the figures shows that the UK had a goods deficit of £8billion and a services surplus of £7.6billion.

May's figures are a hopeful sign that trade will make a positive contribution to economic growth after being a major drag in the first quarter of the year.

Britain has largely relied on domestic demand to propel its economic recovery since the middle of 2013.

Exporters have struggled in the face of weak demand in the euro zone - the main market for British goods and services - and a rally by the pound.

Britain's trade data is volatile on a monthly basis, however, and the ONS said that in the three months to May exports were up 2.6 per cent while imports fell 0.2 per cent.

But April's deficit was revised up caused by imports being higher than previously thought.

It was the second month in a row that the import figure for a previous month was revised higher because of changes in figures from Britain's customs department.

However, David Kern, chief economist at the British Chambers of Commerce said: ‘On first glance the trade figures are exceptionally good. However, it would be premature to celebrate the virtual disappearance of our trade deficit.’

He added: ‘Beneath the surface we see that exports in current prices were unchanged between April and May and in volume terms exports fell by 3.4 per cent. It’s also important to note that the main reason for the fall in the deficit was the fall in imports, not a significant rise in exports.

‘If these figures signal the start of an improving trend then of course that is positive. However, the longer term data suggests that we still have some way to go to close our trade gap for good.’