LONDON: The UK’s trade deficit in goods widened to a new record last year in another illustration of the country’s failure to rebalance towards manufacturing.
The £125bn deficit in goods was partially offset by a £90.3bn surplus in services, meaning the overall trade deficit increased by £300m for the year as a whole to stand at £34.7bn.
David Kern, chief economist at the British Chambers of Commerce, said “much more needs to be done” to improve UK trade and called on the government to place greater emphasis on helping small businesses start exporting, as well as assisting companies break into new markets.
The business organisation has previously estimated the UK would miss its target of doubling annual exports by more than a decade. The UK last ran a positive trade balance in 1997, and there has been a string of warnings that the country is unlikely to achieve the government’s aim of £1tn in exports by 2020 or ensuring an additional 100,000 companies become exporters.
Last year the government overhauled the way it promotes exports, seeking to give individual departments a bigger role. In the Autumn Statement, the budget for the central UK Trade and Investment agency was cut by £42m over the next four years.
Allie Renison, head of trade at the Institute of Directors, the employers’ group, said meeting the export target would be a “monumental challenge”.
She added that the figures showed it would be the services sector, led by professional and financial services, not manufacturing, that would power any export boom.
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“It is their success in tapping into growing markets and fledgling middle classes in countries like China and India that will underscore the health of Britain’s economy in years to come.”
In the shorter term, trade again looks likely to subtract from overall economic growth this year. While the monthly figures for December show the overall deficit narrowed to £2.7bn, this was due to declining imports.
Paul Hollingsworth, economist at consultancy Capital Economics, said that while the recent falls in the value of sterling should start to help exporters, “any progress in reducing the trade deficit is likely to be extremely slow in the near term, leaving the recovery reliant on domestic demand”.
Martin Beck, senior economic adviser to the EY Item Club, the forecasting group, said there were bright spots in the data — pointing to an increase in the volume of goods exports to the US and the eurozone in particular. However, Mr Beck added that his expectations for net trade were modest, merely exerting a “progressively smaller drag” on gross domestic product.
With little help expected from trade against a backdrop of increasing concerns about the global economy, consumers will again shoulder the burden of maintaining the recovery.
Separately on Tuesday, Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, reiterated in a speech that policymakers were keeping a close eye on the expansion of credit, which has again begun to grow rapidly.
“Given the vulnerability that already exists and the powerful drivers in the UK, particularly in the housing market, if credit began again to grow faster than GDP, I would want to think about action to manage the financial stability risks sooner rather than later,” he said.