Awful trade data for August today saw the pound fall against the euro and increased tension over the UK’s future trading relationship with the European Union post-Brexit.
Figures from the ONS showed that Britain’s trade deficit in goods rose by £1.4billion to £14.2billion – a record high. In the three months to August, exports fell 2.7 per cent while imports rose 3.9 per cent.
Economists said the figures meant sterling’s depreciation has provided no ‘silver lining’ for exporters, some of whom have had to increase their sterling prices to cope with rising import costs.
Economists said sterling’s depreciation has not provided the ‘silver lining’ many were hoping
Samuel Tombs, chief economist at Pantheon Macroeconomics, said: ‘The UK isn’t benefiting from a trade boost because exporters have increased their sterling prices by 15 per cent since the pound’s peak in November 2015.
‘As a result, the price of goods exports in foreign currency terms is only 4 per cent lower than in November 2015. Exporters, meanwhile, are hoarding cash, not investing to ramp up production, due to hard Brexit risk.’
After the data the pound – which is vulnerable to any Brexit related news at present – fell against the euro, down 0.04 per cent to €1.11870.
Suren Thiru head of economics at the British Chambers of Commerce said: ‘Firms are continuing to face higher input costs due to the weakening currency, particularly those locked into global supply chains.
‘For those companies that rely on overseas suppliers for their production equipment, a weak pound also makes investment in growth less viable.’
Tumble: The pound is in negative territory against the euro, down 0.04 per cent to €1.11870
It had been thought that British exporters would be able to benefit from the fall in the value of the pound, which makes UK goods cheaper for overseas buyers, but this has not materialised.
As Theresa May’s Brexit negotiations continue to falter, the ONS figures also show that Britain’s import of goods from the EU hit a record high in September.
The UK imported over £22billion worth of goods from the EU in August, but only exported £14billion, driving home the importance of a trade deal as the clock ticks towards Brexit in March 2019.
Trade deal?: The figures indicate how important it is for the UK to make progress with Brexit negotiations as leaving EU without a deal could have negative consequences for exporters
Oliver Kolodseike, senior economist at the Centre for Economics and Business Research, said: ‘The ONS figures highlight how dependent the UK is on trading with the EU.
‘These figures indicate how important it is for the UK to make progress with Brexit negotiations as leaving the EU without a deal could have far-reaching negative consequences for exporters.’
Britain’s total goods and services trade deficit, the gap between exports and imports, widened by £2.9billion to £10.8billion in the three months to August.
DATA DELUGE DAY
Latest figures from the British Retail Consortium and KPMG showed that like-for-like retail sales rose 1.9 per cent last month, compared to a 0.4 per cent rise a year earlier, while total sales climbed 2.3 per cent.
While the results appear to extend strong sales seen in August, experts say shoppers are spending more on essentials but shying away from big ticket items like furniture and household goods amid creeping inflation which hit 2.9 per cent in August.
In brighter news, output in Britain’s manufacturing sector came in ahead of expectations, climbing 0.4 per cent month-on-month and 2.8 per cent year-on-year.
Industrial production rose by 0.2 per cent month-to-month in August, in line with forecasts and July’s 0.2 per cent increase was revised up to 0.3 per cent.
Construction output rose by 0.6 per cent in August from July, however, on a three-month basis it fell 0.8 per cent.
The data dump comes amid a worrying slowdown in Britain’s economic performance this year.
Samuel Tombs at Pantheon Macroeconomics, added that the figures could mean the Bank of England, which had been expected to increase interest rates in November, may now think twice.
He said: ‘Industrial production is growing too modestly to offset the hit to GDP growth from the slowdowns in the construction and services sectors.
‘Note that the MPC’s hawkish shift last month was driven by its judgment that there was upside risk to its GDP forecast, which no longer appears significant.
‘As a result, we still think that investors are wrong to think that a November rate hike is a done deal; we continue to think that the MPC will wait until next year.’