The IoD says the worsening trade deficit, partially caused by a demand for vehicles to ferry Christmas goods, could mean 2016 is a challenging time for British exports
A demand for foreign trucks to transport internet shopping deliveries in the run-up to Christmas has been blamed for widening the British trade deficit. The IoD believes the figures – which hit £4.1bn in October, up from £1bn in September – forewarn challenges ahead for many UK exporters.
The Office of National Statistics (ONS) attributed the growth in the trade deficit to the trade in goods, highlighting that commercial vehicle operators have been boosting their fleets by purchasing foreign lorries to satisfy Christmas demand. Imports of road vehicles increased by £300m in October.
This surge for overseas goods could result in 2016 being a difficult year for many British manufacturers and exporters, said Allie Renison, the IoD’s head of Europe and trade policy.
“The next twelve months will be the crucial test of whether Britain can make a more significant dent in our gaping trade deficit,” she said.
“With the European Central Bank [ECB] extending quantitative easing, the continued depreciation of the euro and turbulence in developing markets, British exporters will be under sustained pressure.
“Manufacturers, in particular, will have a tough time competing against continental firms. While Britain’s impressive trade surplus in services will offset this to some extent, we cannot be overly reliant on our world-leading services to fly the flag for British exports.”
However, Renison also stressed that business-leaders shouldn’t be alarmed by the worsening trade deficit. “As ever with these monthly trade statistics, it’s important to look at the numbers behind the headlines. The trade deficit widened in no small part because companies and households bought more from overseas, pushing up imports.
“This is no cause for concern and robust demand at home is a sign of confidence in the British economy. It’s also encouraging that businesses continue to invest in machinery and equipment from abroad. This may increase our trade deficit, but is clearly a sign companies are ramping up production.”
The import of goods increased from £2.3bn to £35.4bn between September and October, while exports decreased by £700m to £23.5bn.
To boost British exports, Renison urges the freeing up of trade restrictions between the UK and the rest of the world. “At a time when British companies face so many hurdles to increase their export performance, it is imperative that protectionist barriers are stripped away,” she says.
“Ensuring that trade is as free and easy as possible is the surest way to increase the value of the goods and services that Britain sells overseas. The conclusion of the free trade deal between the EU and Vietnam is an important development on this front. The EU must focus on securing as many far-reaching trade deals with high-growth countries as it can to help European firms access new markets around the world.”