Export-led growth remains a distant prospect, says EY

THE economic recovery is likely to remain a domestic affair following news that the trade deficit has widened, says accountancy and advisory firm EY.

Following an unexpectedly small trade deficit of £0.7bn in December, UK trade data shows this widened to £2.6bn in January

Andrew Goodwin, senior economic adviser to the EY ITEM Club, said: This suggests that a rebalancing towards export-led growth continues to remain a distant prospect.

“Exports of goods fell by a sizeable 4% month-on-month in January, partly reflecting falls in chemicals and aircraft, sales of which can be volatile.

“Meanwhile, imports increased by 3.4%, but stripping out erratic factors – defined as ship sales, aircraft, precious stones and silver – import growth was a more modest 1.2%.This suggests the consumer recovery is not yet sucking in imports at a particularly rapid rate. The less volatile three month-on three month data showed imports down by 3%.”

Goodwin says recent survey data does point to an upturn in export growth but cautions that surveys of export orders have tended to represent a much brighter picture than the official data in recent months.

“Overall, we think that the recovery is set to remain a largely domestic affair,” he said.

“On the horizon, activity is picking up in the UK’s main export markets, with expected sales into faster-growing emerging markets. But, the on-going strength of sterling won’t help.

“Domestic demand will eventually rise at a healthy pace, and we expect growth in imports to pick up, cutting any support to the economy from net trade.”