U.K. Trade Deficit Shrinks

The U.K. trade deficit narrowed in February as record oil sales and the weakness of the pound kept exports close to the highest in 1 1/2 years.
TradingEconomics.com, Bloomberg 4/10/2008 7:04:56 AM

The goods trade gap was 7.5 billion pounds ($14.8 billion), compared with 7.9 billion pounds in January, the Office for National Statistics said in London today. The result matched the median forecast of 24 economists in a Bloomberg News survey. Exports fell 0.2 percent and imports declined 1.7 percent.

Manufacturing reached the strongest level since 2001 in February, buoyed by a drop in the pound against foreign counterparts including the euro. The British currency has fallen on speculation the Bank of England will cut its benchmark interest rate for a third time since December as soon as today to shore up economic growth.

Oil sales climbed to 2.5 billion pounds, the highest since monthly records began in 1980, as the price of crude increased, the statistics office said. The cost of a barrel of crude reached an all-time high of $112.21 yesterday. The oil balance was in surplus for the first time since April 2006.

Total goods exports were little changed at 20.5 billion pounds in February, the statistics office said. Apart from oil, overseas sales of cars and basic materials rose.

The pound fell to a record 80.29 pence against the euro after the report today. The British currency has fallen 11 percent in the past year on a trade-weighted index compiled by the central bank. U.K. exporters sell about half their goods to the euro region.

Sales to the European Union fell 4 percent, less than the 4.2 percent drop in imports. Exports to the rest of the world increased 5.4 percent to a record 8.6 billion pounds, outpacing the 1.5 percent gain in imports.

U.K. manufacturing unexpectedly rose for a second month in February to the strongest level since March 2006, data from the statistics office showed yesterday.

A narrowing deficit may support economic expansion, helping to offset weakening consumer spending and service industries.

Slowing economic expansion overseas may still curb demand for British goods. The International Monetary Fund yesterday estimated a 25 percent chance of a worldwide economic downturn and lowered its forecast for global growth to 3.7 percent this year from a 4.1 percent prediction in January.

The IMF also reduced its forecast for U.K. growth this year to 1.6 percent from 1.8 percent and said that the Bank of England has scope to lower interest rates. Central bank Executive Director Paul Tucker said last week there was a risk that economic growth will slow ``considerably'' because of turmoil in credit markets.



U.K. Trade Deficit Shrinks