UK trade gap narrow to £9.7bn after record monthly high for exports

A container ship

A container ship - Credit: PA

Britain’s trade gap narrowed to a better-than-expected £9.7bn in October after exports soared to a record monthly high.

Figures from the Office for National Statistics (ONS) showed that the goods deficit - the gap between exports and imports - narrowed by £4.1bn in October from £13.8bn in September, with exports rising £2.1bn to £26.8bn and imports dropping £2bn to £36.5bn.

With services included, the trade gap narrowed by £3.8bn to £2bn in October, as exports increased by £2bn and imports dropped by £1.8bn.

The brighter picture for the UK’s trade deficit was driven by strong goods exports to non-EU countries, which jumped to a new high of £14.4bn, while exports of goods to non-EU countries came in at £12.4bn.

However, ONS Statistician Hannah Finselbach said there was only “limited evidence” that the plunge in the value of the pound following the Brexit vote had led to a marked increase in UK exports.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The total trade deficit narrowed substantially to a five-month low of £2bn in October after widening to £5.8bn in September from £5.4bn in August and £3.6bn in July.

“Exports likely increasingly benefited in October from the weakened pound lifting foreign demand for UK good and services.

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“The hope for the UK economy going forward is that the substantial overall weakening of the pound since the UK voted to leave the European Union in June’s referendum will increasingly feed through to boost foreign demand for UK goods and services.

“This is all the more important given the weakening prospects for domestic demand due to likely deteriorating consumer fundamentals and increased uncertainty when the UK starts the Brexit process by triggering Article 50.”

He said the narrowing of the trade deficit and October’s 4.6% monthly rise in exports raised hopes that net trade will boost gross domestic product (GDP) in the fourth quarter.

But despite shrinking month-on-month, the total trade deficit in goods and services widened by £4.7bn to £13.2bn in the three months to October, as exports rose by £1.6bn, but imports climbed by £7.7bn.

The UK Government is hoping the Brexit-hit pound will increase the appetite for UK products on the global stage by making British products cheaper.

But the sterling’s collapse has proved a double-edged sword, hammering firms with sharply higher import costs which are likely to be passed on to consumers.

The Bank of England predicts inflation will nearly treble over the next two years, shooting up to 2.7% for 2017 and 2018.

The trade update comes after ONS figures showed that output in Britain’s manufacturing sector unexpectedly slumped to a fall of 0.9% in October, as a sharp drop in pharmaceutical production dragged on the industry,

Industrial production also plunged below expectations, dropping for the third month on the bounce to a decline of 1.3% in October in contrast to September.

Britain’s construction industry also defied predictions in October, with output falling 0.6% month on month, compared with economist estimates of a 0.3% rise.