Britain’s trade deficit with the rest of the world widened unexpectedly in September as the sharp fall in the pound since the Brexit vote failed to boost exports.
The UK trade in goods deficit increased by £1.6bn over the month to £12.7bn. Imports rose £1.3bn to £38.8bn, while exports fell by £200m to £26.1bn. Imports of ships, materials, vehicles and oil were all up in September, the Office for National Statistics said.
The disappointing figures suggested the 16% fall in the value of the pound since the EU referendum in June failed to lift exports, despite making British goods cheaper abroad.
Alan Clarke, an economist at Scotiabank, said that a weaker currency was not necessarily a key driver of exports. “If we are lucky, the weak pound may boost exports, but I would highlight that export growth tends to be driven more by the strength of overseas demand, rather than the exchange rate.”
Britain’s trade position looked better in the third quarter overall, with the trade in goods deficit narrowing by £1.5bn compared with the second quarter, to £33.bn. Growth in exports of £4.5bn or 6.1% outpaced growth in imports of £3.1bn or 2.8%.
Hannah Finselbach, a statistician at the ONS, said the weak pound had little to do with the smaller deficit between July and September: “In this first full quarter since the EU referendum, there was a small reduction in the trade deficit, but so far there is little evidence in the data of the lower pound feeding through into trade volume or prices.”
The broader goods and services deficit also narrowed over the third quarter, by £1.6bn to £11bn.
Paul Hollingsworth, UK economist at Capital Economics, said that net trade was a positive contributor to economic growth in the third quarter, when GDP increased by 0.5%. Trade was a drag on growth in the second quarter.
“Admittedly, [the trade] figures have been somewhat overshadowed by the news from the other side of the Atlantic this morning,” he said. “Trump’s victory in the US election injects a degree of additional uncertainty over the external environment to go alongside the domestic instability caused by the EU referendum. Some 20% of the UK’s goods and services exports go to the US, equivalent to about 6% of UK GDP.
“Nonetheless, the pound is still well down on pre-referendum levels, providing exporters with a considerable competitiveness boost.”
The Bank of England’s latest monthly snapshot of businesses around the UK suggests companies are planning to rein in spending in the coming 12 months. The Bank’s regional network of agents said there was concern about future demand and trading arrangements following the referendum.
“Overall, firms in the survey reported expectations of broadly stable or slightly lower investment spending in the year ahead, after quite a significant increase in investment over the past year.”
The Bank’s November report found that the weak pound was pushing up costs at UK firms, with profit margins lower than usual. “Pass-through of higher prices in supply chains to consumer prices had so far been limited, reflecting strong competition between retailers,” it said.
Agents reported that while business sentiment had recovered further from a post-referendum fall, it remained relatively fragile because of significant uncertainty over the longer-term outlook.