Mixed signals on UK trade as deficit climbs to £1.64bn

BY JOHN SHEPHERD

Hopes that Britain's balance of payments with the rest of the world would move into surplus this year suffered a setback, with the Central Statistical Office announcing a much larger than expected visible trade deficit of £1.64bn for December.

Economists had been expecting a deficit of around £1.25bn, and the outcome compared with the deficit of £754m recorded in November.

Forecasters treated the figures as a one-off and said that the improvement shown through most of last year would soon be re-established. There were some concerns, however, that recovery in the UK was starting to suck in more imports, which could lead to a further rise in interest rates.

Adam Cole, economist at the stockbroker James Capel, said the rise in imports was due to two factors: the fading impact of the 1992 devaluation, and the acceleration in spending on consumer goods, which was traditional at this stage in the recovery.

The Government tried to calm fears about rising imports by focusing on the UK's success in increasing exports. Richard Needham, trade minister, said: "1994 broke all records, with export values totalling £135bn and volumes and values up 11 per cent over 1993. All the signs are that this growth will continue in 1995."

A survey by Oxford Economic Forecasting predicts that exports of goods and services are likely to rise by 10 per cent this year.

A spokesman at the Treasury said the rise in the December deficit was mostly due to an increase in imports from countries outside the European Union, a situation that was reversed in January. He said export volumes in the fourth quarter of 1994 were at record levels, up 13.3 per cent a year ago. More than 20 per cent went to EU countries.

Despite the upbeat messages from Mr Needham and the Treasury, the value of goods produced in the UK and sold overseas fell from £12bn in November to £11.66bn in December. Imports were £13.3bn, up from £12.76bn in the previous month.

Exports, excluding oil and other erratic items, were £10.27bn, down from £10.63bn in December, while imports rose from £11.68bn to £12.28bn.