Trade deficit narrows - are Government plans working?

Some surprisingly encouraging news, as the trade deficit narrows. Although analysts aren't optimistic.

by Emma Haslett
Last Updated: 01 Nov 2011
It’s not often we get to say this, but it looks like one of the Government’s dastardly plans might be working. The trade deficit, the index that measures how much the UK is exporting versus how much it’s importing, shrank in August – meaning Britain’s manufacturers had a relatively successful summer. According to figures from the Office for National Statistics, the deficit ‘fell sharply’ from £2.3bn in July to £1.9bn in August – which means the Coalition’s plan to boost growth in the economy by encouraging businesses to export is actually paying off. The question now is, will it continue?

The stats show that it’s goods, rather than services, that were the most popular: exports of goods rose by £0.2bn to a ‘record high’ of £25.5bn, largely driven by non-EU countries buying up fuel, while EU countries bought food, drink and tobacco. (We’ll keep schtum about the slight fall in car exports to the US and China). The services surplus, though, apparently fell from £8.2bn in July to £7.8bn in August. It’s still a surplus, though – so not exactly a tragedy. Three-month figures showed that the countries most enamoured by British-made goods are Ireland, China and (a bit weirdly) the Netherlands – while exports to the US and the rest of Europe fell.  

This is all very encouraging, of course – although analysts were very quick to point out that it’s a bit of an anomaly. ‘We struggle to see this lasting, given intensifying recession fears and a generally weak global growth environment,’ gloomed ING’s James Knightley. Unfortunately, he might have a point: after all, while import prices fell by 0.5% in August, the price of exports fell by 1.5% - not very even. And the purchasing managers’ index, which looks at the manufacturing sector, has also suggested that exports have begun to drop as growth slows in China and India, and the eurozone teeters on the edge of recession. Legal & General Investment Management has even gone as far as to say that it's 'unavoidable' that the UK's credit rating will be downgraded as the Government misses growth targets.

Still: considering fuel is popular, the deficit might be further narrowed by a new project by BP, which is planning to invest a cool £4.5bn to extend its Clair oil field, west of the Shetland Islands. This is all part of a resurgence of popularity in the North Sea. While interest in the area had, until fairly recently, been waning, BP says that it now sees ‘the potential to maintain our production from the North Sea at around 200,000-250,000 barrels of oil equivalent a day until 2030.’ Which means BP and its partners Shell, ConocoPhillips and Chevron are now planning to invest £10bn in the area over the next five years. Not bad, eh?

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