Hopes that the cheaper pound will boost exports dealt a blow as the UK's trade deficit widens
Hopes that the cheaper pound will boost UK exports were dealt a blow today as official figures showed Britain's trade deficit widening by £2.5billion in August.
The Office for National Statistics said the deficit on trade in goods and services reached £4.7billion in August 2016.
While imports increased by £2.6billion, exports only rose by £100million – although optimists would point out that weaker sterling exchange rates might not have had chance to make an impact by then.
Import-exports: Britain's trade deficit widened by £2.5billion in August
Sterling has fallen to fresh three-decade lows this week to trade near $1.242 against the US dollar and €1.117 against the euro today.
Theoretically, a weaker pound should make British goods less expensive and more competitive on the international stage.
Britain’s service sector saw its trade surplus rose by £100million to £7.4billion in August, with exports estimated to have hit £19.3billion. The service sector’s trade surplus reached £7.4billion in August, an increase of £100million with exports estimated to have reached £19.3billion.
Good exports were backed by a £300million rise in material manufacturers and rises in chemicals and aircraft exports. But the figures were dragged down by a £300million fall in ship exports and a £200million fall in oil exports in August.
There was a 0.6 per cent fall in goods exports to the EU to £12.4billion whereas EU imports climbed 5.1 per cent to £20.8billion.
The ONS said that while export prices grew faster at 0.7 per cent than imports at 0.1 percent in August this was a delayed reaction from July's import price rise, saying that it was unclear whether sterling depreciation had an effect.
Martin Beck, senior economic advisor to the EY ITEM Club, said: ‘August’s trade deficit came in at £4.7billion, which was well above the average of the past year. The extreme volatility and large revisions (the July deficit was revised from £4.5billion to £2.2billion) mean that the trade data must be interpreted with extreme caution.
'But one tentative message from the recent data is that exporters appear to have used the weaker pound as cover to raise their sterling prices. This may explain why there is little evidence of any benefit in the output data.’
MANUFACTURING SECTOR BACK IN GROWTH
Britain’s manufacturing sector’s output returned to growth rising by 0.2 per cent in August despite weak industrial production figures - after a sharp July fall of 0.9 per cent.
Transport equipment provided the largest contribution to growth, increasing by 2.5 per cent, the ONS said. It had fallen by 1.6 per cent in July.
Economists had forecast a 0.2 per cent drop in industrial production but it fell more steeply by 0.4 per cent. The largest falls coming from mining and quarrying which dropped by 3.7 per cent.
Purchasing managers’ surveys for the manufacturing sector have recovered since falling sharply in the first month after the EU referendum. Activity was 55.4 last month compared with 53.4 in August, and exceeding forecasts of 52.1.
Kate Davies, ONS senior statistician, said: 'Manufacturing output was up slightly in August with more cars built, with limited evidence suggesting the lower pound boosted exports.
'Nevertheless, this was offset by a fall in oil and gas production, with some field shutdowns contributing to the fall, meaning UK production as a whole was down.'