Rebalancing hopes dashed as exports plunge

Trade data from the Office for National Statistics (ONS) showed the overall deficit narrowed to £2.1bn from £2.2bn the month before, as imports also fell.

But exports of goods dropped to £23.5bn, their lowest level since November 2010.

Economists said the data suggested the recovery was still too reliant on domestic demand, blunting hopes that a pick-up in trade with the rest of the world will help to make the UK’s consumer-driven upswing more balanced.

It comes a day after figures showed the manufacturing sector had notched its best year-on-year improvement for three years, while the International Monetary Fund said the UK was on course for the strongest growth among the G7 this year.

The IMF said exports as well as business investment had been disappointing even as it raised its forecast for the country’s growth.

Yesterday’s ONS release showed the deficit in goods in February narrowed from £9.5bn but was still a substantial £9.1bn.

The UK’s powerhouse services sector saw its surplus shrink from £7.3bn to £7bn.

Hopes for the UK car industry were dealt a blow as the figures showed exports dropped £44m and imports rose by £404m.

The ONS pointed out that the total trade deficit in the three months to February had nearly halved from £8.7bn to £4.8bn.

This was driven by imports reducing by more than exports, rather than a boost in the latter.

Samuel Tombs, UK economist at Capital Economics, said: “February’s trade figures showed that the economy is still struggling to rebalance towards exports.

“As long as demand in the UK’s main continental export markets remains weak, the economy is likely to struggle to rebalance towards exports.

“What’s more, strong growth in investment, which is typically import-intensive, is likely to prevent the overall trade deficit from narrowing much.

“The UK’s economic recovery is likely to remain largely a domestic affair.”

UK Trade & Investment is running a series of regional events to promote exports this week.