UK trade gap narrows

Britain's goods trade deficit narrowed more than expected in April as imports dropped, adding to signs the country's economic growth will gather pace in the second quarter but still reflecting a weak recovery. The Office for National Statistics said on Friday the goods trade deficit shrank to 8.224 billion pounds ($12.8 billion) from 9.175 billion in March. Economists in a Reuters poll had forecast a gap of 8.8 billion pounds.
Three years ago, Britain began trying to rebalance its economy more towards exports and away from a reliance on domestic consumption after the financial crisis. But progress has been slow, despite a roughly 20 percent fall in the value of sterling since 2008. Friday's data did nothing to change that. Imports fell by about 1.3 billion pounds to just over 33.4 billion pounds, while exports fell at a slower pace.
"If you look at import and export numbers on an underlying basis, much of the improvement is that imports are falling, not that exports are rising," said Ross Walker, an economist at RBS. "There's only limited evidence at best of a rebalancing on the trade side," Walker said. Nonetheless, the figures will help bolster Britain's gross domestic product in the second quarter, given the lower level of imports. Net trade lopped 0.1 percentage points off GDP growth in the first quarter.
"Survey indicators are pointing to a very robust Q2 GDP number and the decent trade balance numbers are providing the first bit of substance to that," said Alan Clarke, an economist at Scotiabank. "The deficit narrowed on the month. It can be volatile but it is a good start to the quarter." Including Britain's surplus in trade in services, the overall trade deficit in April narrowed to 2.579 billion pounds from 3.249 billion pounds in March, also driven by a fall in imports. Over the three months to April, goods exports were up 0.8 percent while imports rose 1.1 percent.
Goods exports to the European Union, much of which is stuck in recession, were their lowest in the three months to April since the three months to June 2012. Britain's trade figures for April contrasted with those of Germany, released earlier on Friday, which showed exports rising and imports surging even more.
Britain's goods trade deficit with non-EU countries narrowed to 3.414 billion pounds in April from 3.469 billion pounds in March, lower than forecasts for a gap of 3.6 billion pounds. The British trade figures come after a brighter run of economic data recently. May's private-sector surveys of purchasing managers in the manufacturing and services sectors point to a 0.5 percent rise in British economic output in the second quarter, building on 0.3 percent growth in the first quarter.
However, the prospects for exports may be darker as the euro zone, the destination for just under half of British exports, contracted by 0.2 percent in the first three months of 2013, hurt by austerity measures in many member states. Despite its slow growth, British inflation remains a problem that has deterred the Bank of England from pumping more stimulus into the economy.
A separate report on Friday showed Britons expect inflation to remain far above the Bank of England's target over the coming year - and even in five years time. A central bank survey showed average public inflation expectations for the next 12 months held at 3.6 percent in May. The bank has a target of 2 percent inflation although price growth has been higher for much of the past five years.