UK Trade Deficit Shrinks

The United Kingdom is seeing more demand from foreigners, helping the country’s trade deficit to fall by nearly $2 billion.

The UK trade deficit fell by 1.2 billion pounds, or about $1.9 billion, in April of this year. That is a fall of over 50% from the prior month, according to the Office for National Statistics, as consumption was offset by greater demand for British services.

The United Kingdom is seeing more demand from foreigners, helping the country’s trade deficit to fall by nearly $2 billion.

The UK trade deficit fell by 1.2 billion pounds, or about $1.9 billion, in April of this year. That is a fall of over 50% from the prior month, according to the Office for National Statistics, as consumption was offset by greater demand for British services.

In total, exports remained flat in April, a deterioration from the first quarter, when exports rose by 0.3%. Most economists expected the fall in exports, as Britain’s largest trading partner, the Eurozone, has seen weak demand that has failed to expand.

A minority of analysts expected exports to the Eurozone to pick up aggressively at the beginning of the year, because of the European Central Bank’s aggressive quantitative easing program. That monetary policy, which is set to inject over 1 trillion euros into the economy via the bond markets, is an attempt to stimulate demand and encourage investment, which could include spending on British goods.

That trend has not materialized, causing the trade deficit to remain high. However, many economists believe the trend could reverse by the end of the year, as exports recover and greater stability comes to currency markets.

Additionally, the ECB’s QE program has weakened the purchasing power of the euro relative to the British pound. So far, in 2015, the euro has lost nearly 6% of its value relative to the British pound, which has made British goods pricier for continental consumers.

At the same time, Europeans are also struggling with uncertainty throughout the Eurozone, as Germany and Greece continue to wrangle over the debt crisis that some worry could result in a destabilization of the currency union as a whole.

In total, the ONS said the UK had a deficit of 8.6 billion pounds on goods, versus a 7.4 billion pound surplus on services. The ONS noted that a fall in imports from the continent, particularly in arts, furniture, and oil, has caused the deficit to remain strong, if weakening.

The UK saw its largest trade deficit since 2010 last year, when the deficit grew to 34.8 billion pounds. However, the UK has seen a rebound in exports of organic compounds, chemicals, and fuels, which the ONS says may be the result of growing demand in the United States. On a year-over-year basis, fuel imports fell by 400 million pounds, largely a result of weak oil prices. Oil imports fell by 200 million pounds.

With a growing trade deficit driven by weak demand on the continent, the CBI, a business lobby group in the UK, said that it downgraded its expectations for British GDP growth, which the group now expects to rise by only 2.4% in 2015. That is a fall of 0.3 pounds from the group’s February forecast.