UK trade deficit continues to widen

UK imports continue to grow faster than exports, official data showed on Wednesday, pushing the trade deficit wider.

According to the Office for National Statistics, imports of goods rose by £20.2bn or 14.6% in the three months to May 2022, while exports increased by £10.7bn or 12.6%.

As a result, the trade in goods deficit, excluding volatile precious metals, widened by £9.5bn to £63.1bn in the three months to May 2022 compared to the previous three months.

In May, the total imports of goods excluding precious metals increased by £2.2bn or 4.2%, led by a £1.4bn rise in imports from European Union countries. Total exports increased by £2.3bn or 7.4% following a £1.9bn hike in exports to non-EU countries. That saw the trade deficit narrow marginally, to £9.7bn from £9.8bn in April, although it was wider than consensus, for £8.7bn.

The ONS said that goods exports to the EU reached £16.9bn in May, their highest level since the series began in 1997. Much of that was due to surging prices, however, and once the effects of inflation were stripped out, exports to the bloc peaked at £13.9bn, the highest since December 2020.

Exports to Russia increased slightly in May, the ONS added, but “remain low”, while imports continued to decrease.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “The trade deficit held broadly steady in May but it would have widened were it not for the trade surplus in the volatile erratics component; the underlying trade balance, which excludes this component, widened.

“Looking ahead, we expect the value of imports to continue to rise, due to still-elevated oil prices and a rebound in imports of travel services as the behaviour of British holidaymakers returns to normal this summer following the pandemic.

“The recovery in real UK exports, meanwhile, likely will be weak in the months ahead, with Brexit and surging inflation in key trading partners dulling demand.

“All told, we expect the trade deficit to grow to a colossal £105bn in 2022, from £28.8bn in 2021 before narrowing to about £75bn in 2023 as natural gas prices normalise. As a share of GDP, we expect the deficit to equal 4%, its largest share since 1974.”

All ONS trade figures exclude non-monetary gold and other precious metals because movements can be large and highly volatile, thereby distorting underlying trends.