Fears for economy as trade gap widens

The goods trade deficit – the gap between goods exported and imported – shot up to £8.5bn from £7.6bn in April, when analysts had expected it to shrink to £7.2bn.

The figures have compounded fears over the strength of the economic recovery in the second quarter as services and manufacturing surveys in the period have revealed a mixed performance.

The weak trade data, coupled with improved inflation figures for June, led analysts to suggest the Bank could boost its £200bn quantitative easing programme.

The chief economist at Markit, Chris Williamson, said: “The trade figures will certainly add to calls for a further loosening of policy via more quantitative easing, especially give the surprise dip in inflation to 4.2 per cent today.

“Without growth of overseas trade, the doves on the Monetary Policy Committee are therefore likely to be increasingly concerned that the economy could slip back into recession.”

The UK’s economy grew by 0.5 per cent in the first quarter of 2011, after a 0.5 per cent decline in the final quarter of 2010, meaning the economy effectively flatlined for six months. Some economists have raised fears that the economy may have contracted by as much as 0.2 per cent between April and June after weak industry data and the raft of bank holidays.

The mediocre performance between January and March was propped up by net trade – which added a 1.4 per cent to overall growth – but figures in the second quarter suggest net trade could have been negative.

The figures from the Office for National Statistics showed imports increased by 5.8 per cent in May, driven by a record increase in chemicals including pharmaceuticals, outweighing a 4.2 per cent increase in exports.