December figures ‘pretty poor’ given weakness of pound since Brexit vote, City analysts says
Britain’s trade position with the rest of the world worsened in December as rising global oil prices pushed up the cost of importing fuel, while the continuing weak pound failed to lift sales of UK-made goods abroad.
The difference between the total value of goods and services imported to Britain and sold overseas widened by £1.2bn from November to £4.9bn in December, according to the Office for National Statistics. While there was an increase in goods export volumes, it came at less than half the pace of imports.
The latest trade figures should temper hopes that the economy is rebalancing away from domestic consumption by shoppers on the high street and shifting towards greater levels of global trade and exports. They are also likely to disappoint ministers seeking to expand trade with the rest of the world as Britain leaves the EU.
The monthly trade deficit was the worst reading since September 2016, and was labelled by City analysts as “pretty poor” given that exporters should have benefited from the lower level of the pound since the Brexit vote and rebounding global economic growth. The increase in the trade deficit came amid an increase in imports from non-EU countries at a faster rate than exports.
James Knightley, chief international economist at ING Bank, said: “The UK continues to underperform other developed market economies, growing at around half the rate of the US and the eurozone.”
An increase in fuel imports and lower levels of fuel exports were the main culprit in pushing up the trade deficit in the final three months of 2017, made worse by the rising oil price, which has driven up the cost of importing crude to Britain.
The weaker month for trade will probably have acted as a drag on economic growth in the fourth quarter, with economists reckoning the net trade position with the rest of the world could subtract about 0.5 percentage points from GDP growth – after having made a neutral contribution over the first three quarters of the year.
The initial estimate for GDP growth in the fourth quarter from the ONS was for the fastest pace of expansion in 2017 at 0.5%, though economists now say that could be revised down.
Samuel Tombs, chief UK economist at the Pantheon Macroeconomics consultancy, said British manufacturers were not getting as much of the benefit from the drop in sterling because they source their raw materials from elsewhere around the world – with the fall in the value of the pound since the EU referendum having pushed up these costs. He said this was “offsetting virtually all of the competitiveness boost from the depreciation”.
The disappointing figures come after the Bank of England sounded a more positive note over the health of the British economy on Thursday, hinting that interest rates would need to rise as early as May to counter inflation that is expected to pick up as the economy begins to overheat.
Threadneedle Street reckons the speed limit of the economy has slowed since the Brexit vote, meaning much lower growth rates are still likely to cause rising inflation.
Separate figures on industrial production from the ONS showed the fastest slowdown in December since 2012, due to the shutdown of the Forties pipeline in the North Sea, which carries oil to the Scottish mainland at Kinneil, near Grangemouth. The pipeline was shut in mid-December for three weeks after the discovery of a crack.
The National Institute of Economic and Social Research (NIESR) estimates the pace of economic growth held steady at 0.5% in the three months to the end of January from the level seen in the final quarter of 2017. NIESR said Britain’s manufacturing and services sectors were being supported by the buoyant global economy.