MarketWatch: US trade deficit contracts

Britain’s trade deficit rose to a record level in November as a slump in sales of to the US dashed hopes that the weak pound would help protect exporters from the full effects of the global economic downturn.

The trade gap, which occurs when the sum of goods and financial services imported into the country is bigger than those it exports, widened from £7.6 billion in October to £8.3 billion in November as export earnings fell by 6 per cent to £19.8 billion over the month.

Sales to the US dropped by 21 per cent while exports to Japan fell by 11 per cent. The goods trade gap with non-European Union countries also hit a record, growing from £4.4 billion to £5.3 billion, above expectations of £4.25 billion.

Today's figure is far above the £7.5 billion trade gap analysts had been expecting for November and prompted an immediate fall in the value of sterling, which hit almost $1.46 after the Office of National Statistics published its report.

The gap would have been even worse but for a fall in the value of imports, which were dragged down by slowing domestic demand. UK imports of traded goods, excluding oil, fell by 1.8 per cent in November, the fourth successive monthly decline.

The figures come just days after dismal reports from manufacturers showing that factory output fell at the fastest rate in 28 years in December, heightening fears that the recession is set to be sharper than anticipated and the Tories said they cast doubt on the Prime Minister's forecast that Britain should start to climb out of recession later this year.

"The fact that this is the worst statistic on record gives serious cause for alarm. Along with the collapsed pound, this deficit shows the reality of Britain’s plight," Alan Duncan, the Shadow Business Secretary, said.

"With firms unable to sell their products abroad, Gordon Brown’s claims of a rapid recovery are exposed as hopelessly optimistic. The truth is that ten years of economic mismanagement has left our economy completely unprepared to deal with the downturn, and a clear route out of the pain seems a long way off."

Economists said that although withering exports could be offset by falling imports, it would not be enough to curb a sharp slowdown this year.

Paul Dales, an economist at Capital Economics, said: "One thing is for sure, the UK can't rely on the global economy or the fall in the pound to drag it out of its deepest recession since the early 1980s."

The British Chambers of Commerce said today that it expected GDP to have fallen by 1.2 per cent in the last three months of 2008, marking the second consecutive quarterly fall in output and confirming that the country is officially in recession.

Some economists expect GDP to fall by even more, dipping by as much as 1.5 per cent over the quarter. Official GDP figures will be published next week.

Howard Acher, chief UK and European economist for IHS Global Insight, said: "Imports will be limited by sharply contracting UK domestic demand and the reduced competitiveness of foreign companies due to the markedly weaker pound, so net trade could yet make a modest positive contribution to GDP in 2009.

"However, this will clearly not be enough to prevent UK GDP contracting very sharply this year."

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