Recovery prospects hit as UK’s exports outside Europe fall

In a sign of more pressure on the UK’s first quarter Gross Domestic Product (GDP), the trade deficit on goods and services rose to £3.4bn in February, up from £2.5bn the previous month and bigger than the £2bn expected by the City.

Despite the eurozone debt crisis, the trade deficit in goods with countries in the European Union narrowed but there was a worrying nine per cent fall in exports to other countries, with fewer cars being sent to the United States, Russia and China.

To add to the gloom, the Office for National Statistics (ONS) said the deficit in January was bigger than previously thought, dealing a blow to the Government’s hopes for an export-led recovery. The UK’s economy shrank by 0.3 per cent in the final quarter of 2011 and despite upbeat industry surveys in recent weeks fears remain that the economy contracted again in the first quarter of 2012.

That would mean the UK is back in recession, defined as two quarters in a row of contraction.

Alan Clarke, an economist at Scotiabank, said: “This doesn’t bode too well for the preliminary estimate of first quarter GDP in around two weeks’ time. We expect growth to be in positive territory, but we are no longer as optimistic as we once were, having previously looked for near 0.5 per cent quarter-on-quarter growth.”

The UK’s goods trade deficit increased to £8.8bn in February from £7.9bn in January. The services surplus was £5.4bn – the same as in January. T

There was a rise in exports to the EU, with countries such as the Netherlands and France buying more UK oil and chemicals.

But Vicky Redwood, chief economist at Capital Economics, said the narrowing in the trade deficit with the EU was surprising and added that the weak performance of eurozone economies means that “export growth to Europe is likely to weaken soon too”, concluding that the overall figures were “pretty disappointing”.