UK trade balance improved in November but economists downbeat

A lower bill for oil imports helped to reign in the UK’s trade deficit in November, but strength in sterling, especially against the euro, continued to weigh on exports amid already weak global demand.

The total trade deficit in goods and services narrowed from -£3.5bn in October to -£3.2bn, according to the Office for National Statistics.

That was worse than the -£2.7bn analysts had pencilled in, although the previous month’s tally was revised lower from a preliminary estimate of -£4.14bn.

Meanwhile, the trade in oil deficit decreased from -£1.1bn to -£0.6bn.

Even so, Dr. Howard Archer, chief UK+European economist at IHS Global Insight told clients that: “The trade data are notoriously volatile but the extent of the November/October shortfalls mean that net trade could have held back GDP growth again in the fourth quarter – after it was a major drag on GDP growth in the third quarter.”

Exports of goods and services dropped 1.2% month-on-month in November.

In volume terms, exports of goods rose by 0.6% versus October.

However, that followed a decline of 2.5% in the month before, leaving them up by just 0.6% in terms of quarterly rates of change. Imports rose by 2.5% over the same time frame.

The goods deficit with the European Union hit a record £8.2bn during the month in question.

“Manufacturers will be hoping hard that Eurozone domestic demand can benefit over the coming months from reasonably decent fundamentals, notably including reasonable consumer purchasing power.

“Nevertheless, the pound is still uncomfortably strong for UK exporters while global growth currently remains muted largely due to weakened activity in emerging markets centered on China,” Dr.Archer said.

"Net trade looks set to subtract about 0.5 percentage points from quarter-on-quarter GDP growth in Q4, assuming no erratic movements in December. With the real effective exchange rate still close to its pre-recession peak, net trade is likely to remain a significant brake on the economic recovery over the coming quarters," Samuel Tombs at Pantheon Macroeconomics chipped in.