UK: Decline in exports dents hope for recovery in manufacturing

Britain's trade deficit in goods has widened, according to official figures.

Britain's trade deficit in goods has widened, according to official figures. - Credit: Anthony Prior

Britain’s manufacturing sector edged ahead in July, official figures showed today, but a worrying fall in exports dented recovery hopes.

A 0.2% month-on-month increase in manufacturing built on strong growth the previous month, according to the Office for National Statistics (ONS), although UK factory output remains well behind its pre-recession peak.

But separate trade data from the ONS showed the deficit in goods increased from £8.2billion to £9.9bn, reflecting a 9.3% fall in goods exports excluding oil compared to June.

The mixed figures suggest that while manufacturing appears to be sustaining gains from earlier in the year, slowdown in growth in the world’s emerging economies is sapping demand for British products, economists said.

David Kern, chief economist at the British Chambers of Commerce, said: “The larger-than-anticipated increase in the trade deficit is a reminder of the obstacles facing the UK economy as it starts to recover.”

The ONS manufacturing figures showed that while output was up 0.2% in July compared to June, it was behind 0.7% compared to July 2012.

Month-on-month improvements were seen in various sub-sectors including repair, machinery and equipment as well as computer, electronic and optical products. Pharmaceuticals, electrical equipment and chemicals fell.

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Total production in July was flat compared to June, with the decreases in energy and increases in water supply attributed to the heatwave.

The weak level of growth in manufacturing output, shown by the official ONS figures, contrasts with recent survey data elsewhere indicating a surge in optimism.

Concerns about exports were highlighted by the trade figures showing that the overall deficit more than doubled from £1.3 billion to £3.1 billion - with the higher shortfall in the balance of goods traded partly offset by a surplus in services.

A breakdown of the goods figures showed sales to outside the EU fell by 15.8% from £14 billion to £11.8 billion.

It comes amid fears about the performance of the so-called BRIC economies (Brazil, Russia, India and China) and others like them, after indications that the buoyant performance of recent years has stuttered.

A fall in the value of currency in many of those economies - as investors pull back amid fears of a withdrawal of central bank support in the US - has seen UK exports become less competitive.

Samuel Tombs of consultancy Capital Economics said it suggested further falls in sales to those regions may be in store.

“Today’s trade figures could be an early warning that the economy cannot depend on the strong support that it received from net trade in the first half of the year for much longer,” he added.

Howard Archer of IHS Global Insight said the latest data made it less likely that third quarter growth for the UK could reach 1%, as some have been hoping for after the 0.7% improvement in the second quarter.