UK trade deficit boosts business

Increased economic prosperity in Britain has been stimulated by the unexpected boost of an announcement by the Office for National Statistics (ONS) that the UK’s trade deficit has narrowed to £3.9 billion in September, which is greater than predicted.

The narrowing deficit from £8bn to £7.5bn is an indication that the demand for British goods has increased, as a result of the weaker pound which is at its lowest level in 12 years, when compared to the world’s leading currencies.

The reduction in imports has largely come about as a result of a sharp fall in the cost of oil, as September’s oil deficit narrowed to £68m from £236m last month.

The number of exports increased by 3% to £21.9bn in September while imports rose by only 0.5% to £29.3bn.

Some analysts are warning that caution is needed, as the figures paint an overly optimistic picture since over the coming months, UK exports could be hit by the falling demand within the euro zone and the US, as both Japan and China have experienced.

According to Howard Archer of Global Insight, even though exports are benefiting from the weaker pound and the fall in oil prices, both of these variables are highly volatile and with weak domestic demand predicted, the situation may change as the trade deficit could make a positive contribution to UK GDP, it will not make a big change to the prevailing economic conditions.

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