Recovery blow as trade gap widens

Hopes for an export-led recovery in the UK economy were dealt a blow today after a widening in the country's trade gap in June.

The £4.5 billion deficit on trade in goods and services, which compared with £4 billion in May, was accompanied by separate figures showing UK factory output dropped 0.4% on a month-on-month basis during June.

Economists said the latest releases from the Office for National Statistics (ONS) were disappointing, fuelling speculation that the Bank of England will pump more cash into the economy to jump-start the lagging recovery.

ING economist James Knightley said: "The worry is that plunging equity markets will hurt business confidence and lead to firms cutting orders, thus prompting further falls in output.

"As a result, the prospect of further action from the Bank of England continues to grow."

Excluding trade in services, the ONS said total exports fell by £1.2 billion or 4.8% to £24 billion, compared with an £800 million or 2.4% fall in imports to £32.9 billion.

Howard Archer, chief UK economist at IHS Global Insight, said the export performance was being hampered significantly by slowing global growth, despite the benefits of a competitive pound.

He added: "With concerns mounting that the global economy is in grave danger of suffering a protracted serious downturn, UK export prospects are looking increasingly worrying."

The production of transport equipment was the main downward driver in the disappointing manufacturing figures, followed by paper, printing and publishing.

The ONS's overall index of production was flat on a month earlier and down 0.3% on a year ago after a 13.1% fall in the mining and quarrying sector.

David Kern, chief economist at the British Chambers of Commerce, said: "The fall in manufacturing in June was disappointing and worse than expected. Although longer-term comparisons confirm that the manufacturing recovery is on course, the pace of growth has slowed and there is no room for any complacency.

"Turmoil in the financial markets, and the problems facing the economies of the US and the eurozone, will likely make it difficult for manufacturers to compete internationally.

"While the Government perseveres with implementing its tough fiscal programme, everything must be done to support the manufacturing recovery and ensure there are no setbacks."