DATAWATCH UK failing to rebalance as 2005 trade in goods deficit hits record
Thursday, February 9, 2006 11:25:45 AM
afxpress.com
LONDON (AFX) - The UK economy's reliance on the consumer to generate growth was further illustrated this morning with the news that the country recorded its biggest ever trade in goods deficit during 2005
The office for National Statistics revealed that the trade in goods deficit for the year rose to a record 65.5 bln stg from the previous high of 60.4 bln in 2004 as the high value of the pound depressed exports for the bulk of the year, though there was a healthy 3.5 pct monthly improvement in December
The deficit over the year was worth 5.4 pct of UK GDP and was the highest since 1974's 6.3 pct
Meanwhile the total goods and services deficit also struck a new all-time high of 47.6 bln stg, up from the previous high of 39.0 bln in 2004. The total for the year accounted for 3.9 pct of UK GDP, the highest since 1989's 4.1 pct
"December's trade data supported the message from yesterday's industrial production figures that the economy is unlikely to rebalance away from the consumer and towards the external sector any time soon," said Paul Dales, UK economist at Capital Economics
"For now, these data are a stark reminder to the MPC that the economy is still dangerously reliant on the consumer sector, which still has problems of its own," said Capital Economics' Dales
Yesterday, the statistics office revealed that the index of industrial production stood at 98.6 in 2005, its lowest level since 1995's 97.3, when the UK was last emerging from recession -- the base year is 2002. Over 2005 as a whole, industrial production, which accounts for around 20 pct of UK GDP, was 1.7 pct lower than the year before despite signs of a global economic recovery
Despite mounting concerns about the UK's non-consumer sectors, analysts doubt that the overall trade situation will prompt a change in policy at the Bank of England in the short term, which today is expected to keep its key repo rate unchanged at 4.50 pct for the sixth month running
However, in the longer term it may become more of an issue, said Jonathan Said, economist at the Centre for Economic and Business Research
"If economic growth loses steam in the second half of the year, the trade deficit will back the argument for lower rates," he said
There are hopes that the ongoing improvement in the euro zone economy, particularly in Germany, the currency bloc's largest single economy, will help drive an improvement in the trade numbers in the month to come
However, Howard Archer, chief UK economist at Global Insight said the latest survey evidence from the Confederation of British Industry and the purchasing managers offer conflicting evidence on the strength of export orders for manufacturers in January |
