ONS releases UK trade figures
On 8 July, the Office for National Statistics (ONS) released the latest UK trade figures for the month of May, which showed a widening trade deficit, although not as great as forecasted.
The deficit on trade in goods and services was estimated to have been £2.3 billion in May 2016, a widening of £0.3 billion from April 2016. The deficit on trade in goods only was £9.9 billion in for the month of May – a widening of £0.5 billion from April 2016. However, this was against economists’ forecasts of £10.65 billion. Exports in goods slipped by £2.1 billion to £23.7 billion, whilst imports tumbled by £1.6 billion to £33.5 billion in May.
Analysts said that the latest figures were disappointing but they drew comfort from the more reliable 3-month figures, which showed a narrowing in the trade deficit from £10.2 billion to £8.2 billion from March to May.
The ONS did not release figures on trade growth in volume terms, after announcing that it needed another week to carry out further quality checks.
Impact of the referendum
Since the referendum, the pound sterling has fallen more than 10% against the U.S. dollar and last week it hit its lowest point against the dollar since 1985. This slump in the value of the pound is likely to lead to the trade deficit widening over the next few months, as the cost of imports surge. However, it may help to narrow the deficit in the long term if a cheaper domestic cost base allows British firms to find new markets abroad.
The fall in exports shown by the figures released by the ONS does not bode well for the UK economy in the coming months as it tries to bolster its trade with the rest of the globe to help drive growth after voting to leave the European Union.
Economists had been hoping UK exports would rise following sharp falls in the value of the pound since the June 23 Brexit vote, which should make UK goods more attractive to overseas buyers. We need to wait until August for the release of the first official economic figures from the ONS covering the period after the referendum before the impact of Brexit on UK exports becomes apparent. Following the ‘Out’ vote, the Governor of the Bank of England, Mark Carney expressed fears that any disruption to trade and investment might damage the economy’s underlying productive potential.
At a political level, on Wednesday evening and through into Thursday morning, the new Prime Minister, Theresa May, began to reveal her cabinet. Two important positions regarding the post-Brexit restructuring of the UK’s trade deals were given to prominent Leave campaigners: David Davis was announced as Secretary of State for Exiting the European Union and Liam Fox as Secretary of State for International Trade.
On Friday, The Guardian revealed that the UK has sought advice from Canada on securing trade agreements with the EU following the referendum vote. David Davis, the newly appointed minister for Brexit, said his preferred model for the UK’s continuing relationship with the EU is Canada’s comprehensive and economic trade agreement (Ceta). However, the UK lacks sufficient expertise in negotiating such trade deals, as for many years these agreements had been conducted at EU level. The government is scouring businesses, the European Commission, and other countries including Canada for trade specialists to help with the talks.