UK trade
The UK’s trade deficit contracted in June to stand at £1.5 billion, compared to £2.6 billion in May, according to data released this morning by the Office for National Statistics (ONS). An £8.1bn deficit in goods was largely offset by a £6.5 billion surplus in services. Exports grew by 3.2% over the month, while imports increased by just 0.6%. While month-on-month changes in trade can be very erratic, this improvement appears to be slightly more solid, with exports 4.3% higher over the entirety of Q2 2013 compared to the same quarter a year earlier.
The growth in exports was mostly driven by increased trade with non-EU countries – not surprising given the ongoing weakness in the Eurozone, but nonetheless a positive sign that UK companies are successfully seeking customers further afield. The UK’s exports to China were 20.6% higher in Q2 2013 than a year earlier.
Exports of goods reached a record high of £78.4 billion in Q2 as the UK production sector began to regain some of its strength. Exports of goods were up 6.4% in Q2 compared to a year earlier, despite a 3.0% fall in oil exports and saw their fastest real growth in over two years.
Following concerns earlier in the year that the UK’s recovery was overly-reliant on the service sector, improvements in production industries are welcome news. Industrial production data, released on Tuesday, showed that production rose by 1.1% between May and June – the first positive monthly growth in the sector since February. The expansion was led by manufacturing, which grew by 1.9% month-on-month. Promisingly, output in the sector rose month-on-month, quarter-on-quarter and year-on-year for the first time since September 2010. Manufacturing of transport equipment has seen particularly strong growth, as new models, strong sales and exports boosted the automobile sector.
Rising export growth and stronger manufacturing output spell good news for the UK economy. While we expect growth of at least 1.0% this year, with more government cuts on the horizon and households still facing slow wage growth, there is a limit to the support domestic demand can provide to the economy. A sustained improvement in exports would put UK growth on a surer footing moving forwards; however, there is still a way to go to achieve a trade-led recovery.
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