Economists are worried that despite sterling’s fall the UK has not seen a significant boost to exports which has been the case historically.
The ONS says the widening gap represents a higher rise in imports in terms of transport equipment – cars, aircraft and ships, oil and electrical machinery and a decrease in the export of services.
The total UK trade (goods and services) deficit widened by £1bn between April and May 2017 to £3.1bn, following a narrowing in April 2017 reflecting an increase in imports of goods on the month following a decrease in April 2017.
In a note, Pantheon Economics chief economist Sam Tombs remained concerned that net trade, which has been historically boosted by a lower level of sterling is not compensating for the damage done to UK households’ spending power.
He said: “Net trade likely made a 0.3% percentage point contribution to quarter on quarter GDP growth assuming that export and import volumes were unchanged in June.
“This would be much better than in Q1, when net trade subtracted 0.8pp from GDP growth, but it would not change the big picture that the returns from sterling’s depreciation have been extremely poor.
“Indeed net trade still will have subtracted from GDP growth since Q4 2015, when sterling first began to depreciate. By contrast, six quarters after all past depreciations in the last 50 years, net trade has boosted growth.”
He said the main problem remains that exporters have hiked their prices, blunting the boost to competitiveness from the weak pound.
“Foreign-currency prices for UK goods exports in May were just 5% lower than in Q4 2015.
“Exports are earning healthy profits, but few are willing to invest and ramp up production due to Brexit risk. Markit’s survey of export orders also has weakened over the last few months, casting further doubt over the likelihood of a sustained trade boost going forwards.”
