Trade Gap Widens in the U.K. on Rapid Rise in Imports

After the economic recession affected the British economy severely since its start in 2008 causing company's overseas sales to tumble, thereby resulting in a huge trade deficit, the trade gap widened in March despite recovery in global demand as the rebound in exports was offset by the rise in imports.

In February the trade gap narrowed to 6179 million pounds, the least since June 2006, from the revised 8066 million pounds thanks to exports that climbed the most in seven years boosted by sales of chemicals where the manufacturing sector resumed its expansion.

However, the pace of progress continued in March as today's data showed that trade deficit widened to 7.5 billion pounds from the revised 6.3 billion pounds. The depreciation in pound enhanced demand for British products but the rise in imports was stronger. Imports climbed 5.2%, the highest in 18 months, to 29 billion pounds led by cars and intermediate goods while exports surged 1% to 21.4 billion pounds only in March.   

Moreover, Non-EU trade deficit also increased to 4103 million pounds compared with the revised to 3406 million pounds, while total trade deficit widened to 3.4 billion pounds from the revised 3.4 billion pounds. Probably U.K.'s trade was affected by the fiscal crisis in the euro zone which is considered the largest trading partner to Britain.

As of 08:45 GMT, the pound plummeted versus the dollar to 1.4780 from the day' low at 1.4822.

Policy makers at the BoE revealed previously that the economy in the coming period is going to depend on exports taking advantage of the pound's slid against major currencies. The sterling fell more than 7% against the green currency from the beginning of the year till the end of March.

The economy grew 0.4% in the fourth quarter last year followed by 0.2% growth in the first quarter which reflects the improvement witnessed by the economy. Manufacturing and services resumed their expansion in March as a result of recovery in global demand.

Today, British companies continued to release better than expected profits; BT Group posted a rise in operating profit to 1.53 billion pounds from 1.32 billion pounds a year ago and it expects amelioration in revenue and operating profit during the coming three years.

BoE left both key interest rate and APF quantity unchanged in May and probably will keep them steady till the end of the current year. Meanwhile, the main focus of the new government led by Cameron is lowering the huge deficit that reached 12% last year. Cameron is looking forward to reducing the deficit within 50 days by 6 billion pounds. At the same time these cuts should not affect recovery that is gathering momentum. Thus, the coming period is predicted to be challenging to officials; the inflation report released yesterday stated that there are growth risks surrounding the economy.