UK Economic Recovery Remains Domestic as Trade Deficit Widens Again

The UK's trade deficit widened beyond analysts' consensus in September, showing that the economic recovery remains largely domestic.

New ONS data showed that the deficit on goods and services widened to £2.8bn, a big increase on August's revised figure of £1.8bn. Economists had predicted a gap of £2.3bn and the figure is much larger than the monthly average for the year to date of £2.4bn.

Imports rose by £1.8 billion in September 2014; the largest monthly increase since March 2012 – largely down to the increase in oil imports from non-EU countries.

UK exports can expect to remain sluggish as long as demand continues to languish in its top export market – the eurozone. The strength of the pound has risen considerably over the past year. The fact that this makes British goods more expensive for foreign buyers is a further challenge for UK exporters.

And analysts are predicting the deficit to widen further still over the coming months, with consumer imports also looking likely to increase.

"With relatively import-intensive retail spending and investment continuing to drive the UK's economic recovery, we do not expect the trade deficit to narrow much over the course of the year," said Maeve Johnston, UK economist at Capital Economics.

"Further ahead, we remain optimistic that exporters will benefit from stronger global growth next year and that the economy can still rebalance towards the external sector over the medium term. But for now the onus remains firmly on domestic demand to sustain the economic recovery," she added.

The pound held steady against the dollar ahead of the trade data, but fell slightly against the euro.

Given the worsening trading relationship with Russia, in the face of rising tensions in Eastern Ukraine, it's widely thought that the UK is looking to diversify its energy imports. The US has a ban on the export of crude, which came into place in 1976, but policymakers are currently looking at ways of negotiating its removal, as part of the ongoing EU-US free trade discussions.

At a meeting in London yesterday Portugal's Secretary of State for Europe Bruno Maçães said that the possibility of an energy charter, which would pre-empt the Transatlantic Trade and Investment Partnership (TTIP), had been floated at a recent meeting of EU foreign ministers in Rome.

Better energy-related news for the UK government came in the form of October's "notable" new oilfield discovery in the North Sea, flow-tested at a maximum 5,350 barrels per day.

Named "Marconi" by GF Suez and "Vorlich" by BP, the discovery has been described as "encouraging" by Ruud Zoon, the boss of GF Suez's UK subsidiary.

Robert Wine, a BP spokesperson, told IBTimes UK that the field was "not at the scale" of the big finds of the 1970s and early 1980s but that it is "a good discovery for the stage the North Sea" is at. The North Sea is a mature basin that has been producing for more than 40 years.