The trade in goods deficit fell from £7.8 billion to £7.3 billion in February as exports increased by £0.4 billion and imports were static. Is this the Sterling miracle or heaven forbid the J curve impacting. We have long argued the fall in Sterling will not impact on the balance of payments deficit as many analysts predict and some authorities hope.
In February, the surplus on trade in services is provisionally estimated at £4.1 billion, compared with £4.7 billion in January a fall of £0.6 billion.
As a result, the UK’s deficit on trade in goods and services is estimated to have widened in February to £3.2 billion from a deficit of £3.1 billion in January.
Monthly data is extremely volatile and the ONS warns “the initial estimates of the data are less reliable than previously which makes interpretation of short term movements difficult".
January was a very low base for comparison. The volume of exports increased by 3% compared to prior month and imports fell by 0.5% but compared to February prior year both export volumes and import volumes were down by 14%.
February data provide no evidence of a "Sterling based export recovery." The deficit will moderate as the economy slow, there is a cyclical adjustment effect but devaluation is no solution for the trade deficit. The J curve should be consigned to the dustbin of economic thought along with the Law of Comparative Advantage and the NAIRU.
ONS : UK Trade February 2009
UK trade deficit – Why Sterling doesn’t impact
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