UK trade deficit widens but construction is up

The UK's trade deficit widened in June for the third consecutive month, going up to £2.5bn from May's figure of £2.4bn.

 

Trade deficit is a measure of the difference between a country's imports and exports – and is a contributing factor to overall economic growth. 

 

 

In June, exports of goods from the UK went down by £0.4bn to £23.5bn, reflecting falls in oil and manufactured goods.

 

The disappointing figure is the result of a decrease in trade with countries outside of the EU, with exports to non-EU markets falling by 3.2 per cent month-on-month in the second quarter. Exports to other EU countries, meanwhile, remained flat. 

The resulting goods trade deficit was £9.4bn, which is £0.3bn greater than the figure for May. This was partly offset by an estimated surplus of £7bn on services, according to the Office for National Statistics (ONS). 

 

Combined with the results of the previous two months, June's poor performance meant that the total trade deficit went up to £6.9bn in the second quarter of 2014, up from £5.5bn in the first quarter. 

 

The negative net trade would probably have been a limiting factor to the UK's GDP growth of 0.8 per cent in the second quarter, says the ONS.

 

The result failed to meet analyst expectations of a very marginal narrowing of the goods deficit at the end of the second quarter. 

 

The good news is that construction output is rebounding. Exports for this sector increased by 5.3 per cent in June compared to the same time last year. 

 

This was driven by year-on-year growth of 5.4 per cent in new work, while repair and maintenance work increased by five per cent. Within new work, private housing output performed strongly and is up two per cent month-on-month. Private industrial work increased by 2.7 per cent.

 

 

The hope has been that the gradually improving global growth will help UK exports over the coming months, but the escalating geopolitical tensions between Russia and the rest of Europe over the Ukraine crisis puts this under threat.

 

In particular, UK exporters could be put off by signs that Eurozone growth is faltering at the hands of the tit-for-tat sanctions being imposed by each of the parties involved.

 

Another concern is the current strength of the pound, which traded at a near six-year high on its trade-weighted index in July.