The trade deficit widened in February as export volumes declined to more than 9 per cent below the 2019 pre-pandemic average.
Exports fell to a greater extent than imports, pushing the deficit to £4.8 billion in February, up from £3.5 billion in January, according to figures published by the Office for National Statistics. The average deficit in the 2010s was £2.8 billion.
While high fuel prices are still the main driver of the shortfall, the broader trade deficit in goods also increased, with Britain following an opposite trend to its “advanced” economy peers after Brexit. Real goods exports, excluding so-called erratics, were 12.2 per cent below their 2018 level in the UK but were 3.9 per cent higher on average across the country’s closest competitors, figures from the Netherlands’ statistics office show.
The ONS estimates that the damage from Brexit is likely to have been even larger than the trade figures suggest because changes in its data collection methods have boosted present trade data relative to how the numbers would have been measured before 2022.
The trade in fuels deficit rose to £4.3 billion in February, up from £4 billion in January, compared with an average of £3.4 billion over the previous two years. Although the UK exports gas, the value of this is dwarfed by the value of gas imports, meaning that the surge in natural gas prices since the pandemic has significantly widened the deficit.
However, some forecasters expect a narrowing of the trade deficit during this year as gas prices continue to fall. Gabriella Dickens, at Pantheon Macroeconomics, the consultancy, said: “The underlying trade deficit looks set to narrow this year, in part due to the recent sharp drop in wholesale gas prices. Futures prices suggest the monthly trade deficit in natural gas will be only around £1 billion higher than normal in the second half of the year.”
The trade deficit with the European Union is also likely to decline, given that the outlook for the British economy is more gloomy than that on the Continent, which would be good news for exports, Dickens said.
Nevertheless, Brexit would keep exports subdued as UK exporters struggle with red-tape and additional checks, she added. “We think the trade deficit will narrow to about £65 billion in 2023, compared with £86.6 billion in 2022, but will remain well above 2021’s £28 billion,” she said.