UK trade deficit worsens in August

Britain´s shortfall in its trade with the rest of the world worsened in August amid a jump of purchases of goods from abroad.

The total UK trade deficit for goods and services increased in August by £2.5bn from the month before to reach £4.7bn, according to the Office for National Statistics.

Exports of goods increased by £0.1bn to £25.8bn but imports jumped by £2.6bn to £37.9bn, leaving a shortfall of £12.1bn versus -£9.5bn in July (consensus: -£11.2bn).

The main drivers of the increased imports were more purchases of electrical machinery (£0.7bn) and aircraft (£0.5bn), alongside gains in imports of cars (£0.4bn) and mechanical machinery and chemicals (£0.3bn).

Offsetting that worsening slightly, the surplus in the services balance improved from £7.3bn in July to £7.4 in August.

In terms of quarterly rates of change, the pattern was very similar, with exports rising by 1.2% or £0.9bn between the three months ending in May and the three months finishing in August, while imports did so by 4.0% or £4.2bn.

Over that same time frame, the deficit in the goods balance with the EU widened by £0.8bn to £23.9bn while that with countries from outside the EU worsened to the tune of £2.5bn, reaching £10.7bn.

Also in terms of quarterly rates of change, the services surplus narrowed by £0.3bn to £22.0bn.

"The inflationary impact of the weakened pound came with import prices of traded goods rising 6.5% year-on-year in August, although prices only rose by a further 0.1% month-on-month in August after a jump of 3.0% month-on-month in July. The pound’s marked drop to new lows this week will reinforce these inflationary pressures.

"A major 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. [...] The pound is currently under serious pressure from Increased market expectations of a “hard” Brexit. We suspect that the pound is headed lower and will dip below US$1.20," said Dr. Howard Archer, chief UK+European economist at IHS Markit.