Trade balance data for July has revealed this morning that
the UK trade deficit has narrowed to a February 2011 low of 7.1B. This was lower
than the 8.9B deficit that was anticipated and significantly lower than the
10.1B deficit shown in August.
At 9.0%, overall export sales growth was at its
highest level since 1998. Sales of goods outside the eurozone grew by 11%,
while somewhat surprisingly, sale of goods to the eurozone even grew by almost 8.0%.
More positive news for the economy, then, and it certainly takes some of the
considerable pressure off the UK government.
It is encouraging to see UK businesses respond to the
challenges facing them, in the form of low confidence and deteriorating economic conditions in the
eurozone, by diversifying their global trade relations. Increased take-up from
the US, Asia (especially India) and South Africa all contributed to this
morning’s improved figure. Oil exports to the eurozone was also a key factor
in helping the July trade balance bounce back from June’s disappointing
showing, which was the worst since modern records began 15 years ago.
Once again this points to a rebound for UK GDP in the third
quarter. Awful trade balance figures were a real drag on growth last quarter,
which unless we see another dramatic reversal in August and September, will not
be the case in Q3. It goes without saying that this figure does not change a
very uncertain outlook for UK exporters. The flow of bad news out of the
eurozone has been stemmed somewhat over the summer but for as long as the
region’s economy contracts, a cloud will remain over many UK businesses.
Nonetheless, this is again good news for the UK and no doubt Chancellor George
Osborne will sleep a little easier tonight.
Richard Driver
Currency Analyst
Caxton FX
