Imports of oil and aircraft pushed Britain's goods trade deficit to a record high in November, but an improvement in the underlying trend meant hopes of an eventual export-led recovery were not entirely crushed. The Office for National Statistics said Britain's goods trade gap widened to 8.74 billion pounds ($13.6 billion) in November from 8.59 billion pounds in October.
This was the biggest deficit since monthly records began in January 1980, and confounded expectations for the gap to narrow. However the underlying deficit, which strips out volatile items like oil and aircraft, narrowed from October's record high. The improvement was driven by a sharp rise in car exports, suggesting firms were starting to feel some benefit from the relative weakness of the pound.
Sterling fell immediately after the data, but recovered its losses as investors digested the detail of the report. "While the headline UK trade figures are once again disappointing, scratch beneath the surface and there are some encouraging features," said Howard Archer at INS Global Insight.
Imports of aircraft and aircraft parts increased by 441 million pounds on the month - a jump the statistics office said was related to a significant purchase of large aircraft from a non-EU country. Exports of cars rose by 353 million pounds in November while car imports fell.
British policymakers have long predicted that the fall in sterling which began in mid-2007 would rebalance the economy away from its reliance on domestic demand - a shift that will be especially crucial in 2011 when public spending cuts start in earnest.
Britain's surplus in trade in services improved, but not by enough to offset the widening deficit in goods. The total trade deficit - including both goods and services - increased to 4.123 billion pounds from 4.038 billion, its highest since August.
"The big picture remains that the external sector needs to start giving more support to the wider economic recovery if the UK is to weather the fiscal squeeze now underway," said Vicky Redwood at Capital Economics. Even before the data, economists were expecting British GDP growth to slow to around 0.4 percent in the last three months of 2010 from 0.7 percent in the third quarter.
Growth in the first half of 2011 is forecast to be even weaker as the government starts to cut most departments' budgets by around a fifth. Total exports and imports both hit a record high in value terms, though imports rose faster.