Weak trade data spark Q1 growth fears

The UK's trade deficit worsened by far more than expected in February, underscoring the lack of progress in rebalancing the economy towards exports.

Goods exports fell to their lowest level in more than four years, mainly due to a fall in sales to non-EU countries, particularly the US.

Less than a month from the general election, the data are a rare piece of economic bad news for the government who have been buoyed by rising employment, falling inflation and solid growth.

Paul Hollingsworth, UK economist at Capital Economics, said the figures were "much worse than expected" and "reignited fears that the strong pound and weakness in demand in the eurozone is acting as a straitjacket on exporters".

The Office for National Statistics numbers showed the overall deficit in trade and goods worsened to its highest level in seven-months at £2.9bn in February, compared with £1.5bn in January. There was a £10.3bn deficit on goods, partially offset by a £7.5bn surplus on services.

Simon Moore, international director at employers' group the Confederation of British Industry, said weak exports "seem to the be the headache we just can't shake off" and called for the next government to make growing exports a priority.

The poor trade data have added to concerns about overall economic growth in the first quarter of the year, the first estimate of which will be released just a week before polling day.

Analysts are also faced with conflicting signs on the state of the economy as very strong survey service data contrast with weak official output figures.

Most are waiting for Friday's construction and industrial production numbers to make their final judgments, which are currently between 0.6 and 0.8 per cent quarter-on-quarter. Alan Clarke, economist at Scotiabank, said, however, there was now a "very good chance" growth could slow from 0.6 per cent quarter on quarter to just 0.4 per cent.

Net trade added 0.9 percentage points to growth in the final quarter of the year, its biggest contribution since the first quarter of 2013, but this now looks unlikely to be replicated. Elizabeth Martins, economist at HSBC, said that demand for goods and services seemed to be "growing much faster at home than abroad".

The data were notably worse than the consensus estimate of a £1.5bn deficit. Exports of goods fell by £0.9bn to £23.2bn in February 2015, the lowest since September 2010.

Because the monthly data are volatile, statisticians prefer to look at the three-month trend, but, in this case, the figures are not that much better.

In the three months to February, the deficit in goods trade between the UK and the EU reached a record high of £21.1bn, the highest since records began in 1998.

A fall in the export of oil from the UK is partly to blame, but the figures damped hopes that economic recovery in the eurozone would boost demand for British exports.

Chris Williamson, chief economist at survey company Markit, said strong exchange rates and weaker growth in the US seemed to have hampered exports.

He added that the data supported the view that the UK had "become increasingly reliant on consumers in the home market to sustain the economic recovery, further confounding hopes of a rebalancing away from domestic consumption towards exports".

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