The UK's global goods trade deficit narrowed in June to its lowest level since October 2005, as the oil balance moved into surplus again, official figures showed yesterday.
Goods exports to the US leapt to £3.17bn in June, the highest monthly figure since comparable records began in 1988 according to National Statistics, from £2.45bn in May, in spite of the pound's recent move to a 26-year high against the US currency.
National Statistics' figures also suggested that net trade would have contributed to, rather than detracted from, overall UK economic growth in the second quarter. The UK's overall trade deficit, taking in services as well as goods, fell from £12.3bn in the first quarter to £11.7bn in the three months to June.
However, Capital Economics' Paul Dales cautioned that slowing overseas demand growth and the impact of the European Union ban on UK meat exports, arising from the foot-and-mouth disease outbreak, meant net trade was likely to go back to detracting from growth in the second half of this year.
There was some reassuring news on the inflationary front in yesterday's trade figures.
Import prices, excluding oil, fell 0.4% month-on-month in June, after spiking up in May.
Howard Archer, chief UK economist at consultancy Global Insight, said: "This indicates that sterling's strength had a limiting impact on import prices, helping to counter the upward impact from higher oil prices."
However, he added: "The Bank of England is concerned that higher import prices could pose an upside inflationary risk over the coming months, and it is notable that they still rose by 0.8% quarter-on-quarter in the second quarter (excluding oil), despite retreating in June."
National Statistics said yesterday that the UK's global goods trade deficit dropped from £6.44bn in May to £6.27bn in June - its lowest since October 2005. This confounded the City, which had forecast a deficit of £6.5bn. The trade in oil balance drove the improvement - swinging from a £76m deficit in May to a £257m surplus in June.
Taking goods and services together, the UK's trade deficit narrowed from £3.74bn in May to £3.61bn in June. This was also the narrowest since October 2005. The surplus on services trade declined slightly, from £2.7bn to £2.66bn.
Excluding oil and large "erratic" items, a category which includes the likes of aircraft, the UK's global goods trade deficit actually widened from £6.22bn to £6.42bn.
However, Archer was encouraged by the general buoyancy of overseas sales at a time when the strength of the pound makes UK exporters less competitive in overseas markets. He said: "Taken at face value, the June trade data are good news and boost hopes that growth is becoming more balanced, for now at least. While the overall trade deficit was helped to a 20-month low in June by a recently rare surplus in the oil balance, it is notable that exports of goods, excluding oil, climbed by 2.6% month-on-month in June to be at the highest level this year. This indicates that the boost to UK exporters from current healthy global growth is currently more than countering the dampening impact of the pound's strength. Exports to the eurozone were again robust in June, while exports to the US somewhat surprisingly jumped to a record high despite the recent concerns over the US economy.
"UK imports of traded goods, excluding oil, rose by 2.5% in June, indicating healthy domestic demand."
Dales, predicting tougher times ahead on the trade front, said: "The upshot is that, while the external position is currently helping to support the economy, a modest slowdown in overseas demand and the strong pound suggest that net trade will become a drag on growth just at the point when domestic activity starts to fade."
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