Oil imports send Britain's trade deficit soaring

Jul 14, 2006 02:00 AM

by Rhys Blakely

Britain's trade deficit with the rest of the world widened dramatically in May as the country once again became a net importer of oil and manufacturers struggled to maintain market share both at home and abroad.
According to the Office for National Statistics, the deficit on trade in goods and services hit £ 4.4 bn in the month, £ 1 bn higher than in April and the third highest figure on record. The gap was driven by a massive surge in the deficit on traded goods, up from £ 5.6 bn to £ 6.8 bn, the second worst on record and more than £ 1 bn worse than expected. In February the gap was a record £ 7.2 bn.

Much of May's deficit was accounted for by Britain's renewed status as a net oil importer after a brief spell as an exporter in April. Oil represented around half of the slide in the overall figure. The oil balance deteriorated by more than £ 500 mm, from a £ 200 mm surplus to a £ 320 mm deficit.
The poor trade in goods figure was only marginally offset by a £ 200 mm improvement in the £ 2.3 bn service sector surplus. However, economists said energy imports, stoked by falling domestic output and buoyant oil prices, explained only part of the picture.

John Butler, economist at HSBC said: "The underlying story was that during this month exports were relatively stable but imports picked up sharply. Import volumes, excluding oil, rose 3.1 % in May, while exports fell by 0.1 %."
He said: "It is tempting to argue this simply reflects strong domestic demand but the evidence suggests something slightly different. UK manufacturers are still struggling to maintain domestic, let alone global, market share."

Simon Wallace, economist at the Centre for Economic and Business Research, said the worsening trend was likely to continue "given the pound’s [strength]... and the prospects of a slowdown... most notably [in] the United States."
Britain's deficit with the European Union was £ 900 mm larger than in April at £ 3 bn as exports fell by £ 100 mm and imports rose by £ 700mm, ONS said. The deficit with non-EU countries widened from £ 3.4 bn to £ 3.7 bn. Exports were virtually unchanged while imports rose by £ 300 mm.

Source: Times Online
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