UK trade deficit hits 7-month high as sales to US slump

[LONDON] Britain posted its widest trade deficit in seven months in February as sales to the US and other countries outside the European Union declined sharply.

The goods shortfall of 10.3 billion pounds (S$20.79 billion) compared with an upwardly revised deficit of 9.2 billion pounds in January, the Office for National Statistics said in London on Thursday. Economists predicted a gap of 9 billion pounds for February.

The figures leave a question mark over whether trade continued to contribute to economic growth in the first quarter. Between December and February, the total deficit including services narrowed to 6.5 billion pounds from 6.9 billion pounds in the period through November.

Goods exports fell 3.7 per cent in February to 23.2 billion pounds, the lowest since 2010, while imports climbed 0.8 per cent. Shipments to the EU declined 0.3 per cent. There was a 6.6 per cent drop in exports to non-EU countries, with sales to the US falling more than 700 million pounds to 3.6 billion pounds. Manufactured goods were behind the decline, the ONS said.

Net trade helped the economy to its eighth quarter of growth in the final period of 2014. In February, the total deficit widened to 2.9 billion pounds from 1.5 billion pounds in January, with Britain registering a smaller surplus on services. It means the gap will widen in the first quarter from the 6 billion pounds seen in the fourth if the deficit is more than 1.6 billion pounds in March.

The UK economy remains reliant on domestic demand and sales to the euro area may face further pressure from the strength of the pound. Sterling hit its highest versus the euro in seven years last month and has gained 2.4 per cent on a trade- weighted basis this year. As of 11:30 am London time, it was little changed against the single currency at 72.56 pence per euro and down 0.4 per cent against the dollar at $1.4802.

Exports to the EU, Britain's biggest trading partner, dropped 5.6 per cent in the latest three months. That left the deficit at 21.1 billion pounds, the most since comparable records began in 1998. The deterioration partly reflected the falling price of oil.

The British Chambers of Commerce said on Thursday the economic momentum is slowing, with most export balances weakening.

"It is clear that the UK is not yet making adequate progress to rebalance the economy toward net exports," BCC Chief Economist David Kern said after the trade figures were released.

BLOOMBERG