The trade deficit for the UK rose dramatically in June, hitting its worst level since records began in 1997.
The figures were met with disappointment by economists and analysts who fear that this news will cause the Pound to weaken further against its peers. The deficit measures how much imported goods and services exceeds exports rose by £2billion in June to £4.3 billion. In May the figure was £2.7 billion. The value of British exports has to the EU and the rest of the world has fallen by 4.6% month-on-month.
Economic data released last month showed that the UK economy shrank by 0.7 percent in the second quarter of 2012, marking its third consecutive quarter of contraction, and surveys since then have pointed to a poor start to the second half of the year. The latest deficit was driven by a bigger-than-expected widening in the goods trade deficit, which grew to £10.119bn from £8.364bn.
Alan Clarke at Scotiabank said: “Very hard to take anything positive from this data, it’s a big downward surprise. Oil was one of the biggest drivers in the decline in exports, but even stripping erratic elements out, it’s still bad.
Against the backdrop where our main trading partners, Germany and continental Europe, are very weak, this is no surprise, and the scope for improvement anytime soon is limited.”
The Euro crisis has severely dented any chance for the UK to post growth. Calls are growing ever louder for Prime Minister David Cameron to rethink his economic strategy and distance the country from the fallout of the Euro crisis.
BNP Paribas analyst David Tinsley said that even allowing for the reduced number of working days in June – because of the extra bank holiday from the Diamond Jubilee celebrations – the numbers were very weak. “There’s clearly been a big impact from the low number of working days which has directly affecting shipments,” said Mr Tinsley.
Despite the disappointment in the UK economy the Pound has maintained the strong gains it made yesterday on the back of Bank of England dampening expectations for further interest rate cuts. The BoE says that there is little room for optimism from the Eurozone so it would make sense for the UK’s policy makers and politicians to look outside of the region for a solution to the nation’s problems.
The Euro has begun to fall after the expected fall in optimism over the European Central banks bond buying scheme. Was there really any doubt that the Euro leaders would fail to deliver the goods?
“The euro is finding it increasingly tough to rise above $1.24 given some of the optimism that policymakers can find a solution to the crisis is fading,” said Jane Foley, senior currency strategist at Rabobank. “It will be interesting to see if investors have the appetite to hold it above $1.2350.”
The Pound to Euro exchange rate is currently trading at 1.269
The Pound to US Dollar exchange rate is currently trading at 1.560
The Pound to Australian Dollar exchange rate is currently trading at 1.476
The Euro to US Dollar exchange rate is currently trading at 1.229
The Euro to Pound exchange rate is currently trading at 0.787
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