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Trade Deficit Shrinks To £6.2bn Three-year Low

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http://business.timesonline.co.uk/tol/busi...icle6673160.ece

Britain’s trade in goods deficit shrank by more than expected in May to the lowest level in three years as "distressed" consumers cut back on buying imported goods.

The Office for National Statistics (ONS) said the trade gap in goods fell from £7.137 billion in April to £6.2 billion pounds in May, as imports from non-EU countries slumped.

The reading is much lower than the £6.75 billion gap forecast by analysts and a positive boost for the economy ahead of today's interest rate decision by the Bank of England.

The total trade deficit in goods and services narrowed from £3 billion in April to £2.2 billion in May. The ONS said that the improvement was driven by lower imports

Colin Ellis, chief European economist at Daiwa Securities, said: "While the weak pound has yet to offer much significant support to exports — that will probably have to wait until world demand recovers — UK firms and households are increasingly switching from foreign to domestic suppliers, offering a boost to domestic activity."

David Page, UK economist at Investec, said: "The improvement is coming from a contraction in imports rather than higher exports. The figures are showing consumers in distress rather than a strong exports picture. They will also have been flattered by the recent strength in sterling."

The figures were also boosted by the first oil surplus since September — the biggest surplus since December 2004. The ONS said that the oil surplus might have been because UK refineries were running down stocks due to closure for maintenance in April and May.

The goods trade gap with non-EU countries narrowed to £3.264 billion from £4.116 billion, also below forecast and the narrowest since April 2007.

The pound rose slightly against the dollar this morning, but quickly pared some of the gains. Sterling is likely to come under pressure today as the Bank gears up to announce whether it would extend its scheme of quantitative easing.

Will be interesting to watch the electrical retailers

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Lower imports means very bad news for the World Wide Stimulus.

If we arent buying, then you can bet your bottom dollar other countries arent either.

better get some more stimulus Mr Brown.

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The FT's take on the same story.

UK trade deficit narrows sharply

By Daniel Pimlott, Economics Reporter

Published: July 9 2009 11:06 | Last updated: July 9 2009 11:06

The UK’s trade deficit in goods narrowed sharply in May to the smallest in three years, as imports fell more sharply than exports.

The trade deficit in goods was £6.3bn in the month, down from £7.1bn in April. Over the three months to May, the deficit was £19.9bn, down from £23.1bn a year earlier.

The Office of National Statistics said that the trend “suggests that the whole world goods deficit is narrowing slightlyâ€.

The improvement came in part thanks to a rare surplus in oil. Excluding oil, the value of exports fell by 2.7 per cent, against a 4.1 per cent decline in imports.

The balance of payments has been improving over the last year as both imports and exports have been falling. Imports have fallen more sharply - reflecting both weakness in the domestic economy, and the weaker pound.

However, exports are still falling in spite of the depreciation in sterling over the course of the financial crisis, as the UK’s trading partners remain mired in recession.

“Of course, falling imports still improve the trade position and suggest that net trade will probably make a more positive contribution to GDP growth in Q2,†said Jonathan Loynes of Capital Economics.

“What’s more, the pace of decline of exports has eased over recent months and surveys of export orders have strengthened modestly, perhaps partly reflecting the beneficial effects of the drop in the exchange rate.

“But with demand in key export markets like the eurozone still soft and UK exporters ramping up their sterling selling prices, a strong export-led recovery in the economy remains a distant prospect for now.â€

The fall in the deficit came as the volume of exports excluding oil and volatile elements fell by 4 per cent, and imports fell by 3.8 per cent.

Export volumes to EU countries excluding oil and erratics fell sharply while imports rose modestly. Outside the EU, imports plunged, while exports did not fall as much.

The sharp depreciation of sterling since mid 2007 has partially reversed this year, as the decline in the UK economy has not been as bad as feared compared to other major economies. But it still remains much weaker than before the credit crisis hit.

That has raised hopes that the UK economy will receive a boost to exports and that trade will support growth as the nation seeks to escape the recession.

Import prices excluding oil and erratics fell by 0.9 per cent in May, in a sign that the firming of the pound is holding down import prices.

“UK exporters will be fervently hoping that sterling does not trend higher after rising appreciably from its lows seen around the turn of the year,†said Howard Archer, economist at IHS Global Insight.

People really are slowing down their spending,eh!

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The balance of payments has been improving over the last year as both imports and exports have been falling. Imports have fallen more sharply - reflecting both weakness in the domestic economy, and the weaker pound

Perhaps a more honest headline would have been:

Britain getting poorer faster than the rest of the world

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Perhaps a more honest headline would have been:

Britain getting poorer faster than the rest of the world

Only on the assumption that "debt-funded-consumption = wealth".

The adjustment needs to continue until we're paying our way.

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