The trade deficit measures how much imports of goods and services exceeds exports, and in June it reached £4.3bn - the highest level since comparable records began in 1997. This latest data set paints a very volatile picture of trade in the UK: in March, the deficit was just £2.7bn, with UK services actually reporting a surplus.
However, the trade honeymoon is definitely over.
Goods exports dropped 8.4% in June, one of the steepest declines ever. Overall, there was a 4.6% month-on-month decrease in our exporting capacity - yet another blow for the recession-stricken UK economy. Imports meanwhile fell 1.2% in June, which takes the figure to a 0.5% drop for the second quarter as a whole, the largest decline seen over a calendar quarter for three years.
GDP figures released just a couple of weeks ago showed that the UK economy shrank 0.8% in Q2, a lot more than expected, so the government has called on UK plc to flex its exporting muscles and get us out of the recessionary mire. Exports are a fundamental way to generate cash for the British economy and create more jobs when the domestic market is stagnating. Easier said than done however, when near half of all of our overseas trade is with the eurozone. And we all know what a torrid time that lot are having.
The UK’s economic position is worsening across the board: just yesterday the Bank of England downgraded its growth forecast from 0.8% to zero for 2012, pointing to decreased demand from the eurozone. If demand from across the Channel continues to fall, and the pound suffers any more depreciation, then the country could well end up staying in recession for Q3.
The situation looks even more bleak in Europe. The deficit on EU trade rose to a monstrous £5.2bn in June, compared with £3.9bn in May, reflecting the turmoil in Greece, Spain and Italy. At least we’re not alone in having a manufacturing slump – Germany is suffering a similar contraction in its bread-and-butter manufacturing sector. Further afield, UK exports to non-EU countries fell 9.6% to £11.9bn, but imports remained unchanged, at £17.1bn.
The only good news is that specifically with services exports, there was a 1.7% jump for June, which means a 0.9% jump in Q2 as a whole. This is the largest increase in services exports for 17 months, and helps reverse some of the damage cause by a 5% drop in Q1 of this year.
Generally though, the downward spiral seems to be worsening. Spain situation remains dire, with almost 50% youth unemployment, France is expecting to go back into recession in Q3, and Greece is once again on the brink of running out of money for its fiscal year. And there's no respite in sight...