Bloomberg News

U.K. Goods-Trade Deficit Narrows by Record as Exports Soar

December 10, 2011

(Updates with pound in seventh paragraph.)

Dec. 9 (Bloomberg) -- The U.K. goods-trade deficit narrowed by a record in October as exports soared, boosted by demand from outside the European Union.

The trade gap fell to 7.56 billion pounds ($11.8 billion) from 10.2 billion pounds in September, the biggest narrowing since the series began in 1998, the Office for National Statistics said today in London. The September deficit was a record. Exports rose 9 percent on the month, while imports fell 1.5 percent.

A darkening global outlook and weakening demand in Europe may yet hurt export sales. While the Bank of England refrained yesterday from adding to its stimulus program, data this month showed that manufacturing shrank at the fastest pace in 2 1/2 years in November. Chancellor George Osborne said this week the turmoil in Europe poses a “very significant” danger.

“U.K. exports are particularly vulnerable to weaker euro- zone economic activity and it now looks highly likely that the euro zone is headed back into recession,” Howard Archer, an economist at IHS Global Insight, said before the data were published. This would be a “serious blow for U.K. growth prospects.”

The October goods-trade gap compared with the median forecast of 13 economists in a Bloomberg News survey of 9.4 billion pounds. Exports to the European Union rose by 0.8 billion pounds to 13.9 billion pounds in October, the statistics office said. Exports to non-EU nations increased 1.3 billion pounds to a record 12.6 billion pounds.

Price Pressure

The pound was little changed against the dollar after the data were published. It was at $1.5628 as of 9:35 a.m. in London, from $1.5629 yesterday.

The statistics office also published construction output data showing output fell 2.5 percent in October from the previous month. It was down 2.7 percent on the year.

In a separate report, the statistics office said producer prices rose 0.2 percent in November from October. Annual factory-gate price inflation slowed to 5.4 percent from 5.7 percent. Core producer prices, which exclude costs of food, alcohol, tobacco and petroleum, were unchanged on the month and up 3.2 percent on the year.

Input prices increased 0.1 percent in November from the previous month and were up 13.4 percent on the year.

Some companies are still seeing room to pass on higher prices to their customers. Johnson Matthey Plc, the producer of a third of all autocatalysts, said on Nov. 23 it expects earnings to be “slightly ahead” in the current six-month period. The company said earnings will be buoyed as rare-earth costs are passed on to customers, leading to operating profit at the Environmental Technologies division “well ahead” of the first half.

The Bank of England kept the target for its bond purchases at 275 billion pounds yesterday and held its benchmark interest rate at a record-low 0.5 percent. The central bank last month cut its forecasts for growth and inflation, forecasting that inflation will fall below its 2 percent target in two years, indicating more bond purchases may be needed.

--With assistance from Harumi Ichikura and Mark Evans in London. Editor: Fergal O’Brien

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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