LONDON: Britain’s trade deficit worsened in the final quarter of 2015 amid global market turmoil and a slowdown in emerging market growth that has hit exports. The shortfall between exports and imports widened from £8.6bn in the third quarter to £10.4bn, fuelling concerns that UK’s deteriorating trading position will be a drag on GDP growth this year.
Figures from the Office for National Statistics published on Tuesday showed that a drop in chemicals exports and the long term decline in North Sea oil, which has hit the UK’s trade balance since production began to decline at the beginning of the century, outstripped record aircraft sales and a rise in cars sold abroad.
The situation improved slightly in December, but only after a further slide in the export of goods was offset by a bigger fall in imports and a greater reliance on exports by the services sector. The overall trade deficit narrowed from a revised £4bn in November to £2.7bn in December, smaller than the consensus expectation of £3bn.
Howard Archer, chief UK economist at IHS Global Insight, said: “UK exports have clearly struggled in recent months, as they have been hampered by sterling’s overall strength in 2015, particularly against the euro, and moderate global demand.
“This was evident in total exports of goods and services falling 0.8% month on month in December and by 0.8% quarter-on-quarter in the fourth quarter. Exports of traded goods excluding oil did grow 0.5% month on month in December, but they were only flat over the fourth quarter,” he said.
Britain struggled to improve its export performance last year against the backdrop of a high pound and increasing concerns that the global economy is heading for a severe recession. Recent declines in the value of sterling are expected to support exports sales, though the deteriorating global situation could mitigate against an improved exchange rate.
Paul Hollingsworth, a UK analyst at Capital Economics said: “The UK is clearly not immune to a weaker external environment. However, we think that concerns about a sharp global slowdown are somewhat overdone – indeed we think global growth will accelerate this year. What’s more, the 5% or so fall in trade-weighted sterling since around mid-November should help exporters perform better in time.
“Nonetheless, any progress in reducing the trade deficit is likely to be extremely slow in the near term, leaving the recovery reliant on domestic demand.” Over the last quarter, chemicals exports fell by £900m to £12.1bn while oil exports dropped by 9% to £4.7bn. The ONS said these decreases were partially offset by an increase in the export of aircraft, which rose by 31% to £3.6bn.