Trade deficit `widest since 1992'

Britain's trade gap in August with countries outside the European Union opened up to pounds 1bn, the biggest deficit since the end of 1992. Imports reached a record high of pounds 6.2bn.

The outlook looked no more promising with the Confederation of British Industry reporting that export orders were at their lowest for almost a year. However, the prospects for factory gate inflation have improved, according to the CBI's latest survey of manufacturers.

The size of the trade gap surprised the City which had been forecasting a deficit of pounds .7bn. An improvement in the oil deficit, as some of the maintenance work on North Sea oil fields ended, was outweighed by a deterioration in the balance on total manufactures.

Non-oil exports fell in August, while imports rose in most principal categories. The decline in exports was concentrated in finished manufactures, while the rise in imports was principally in semi-manufactures.

The slowdown in exports will continue in the immediate future, suggested the CBI's September survey of manufacturers. This showed export demand at its least buoyant since last October.

Some 25 per cent of companies reported that their export order books were above normal while 23 per cent said they were below normal. This left a net balance of just 2 per cent, down from 7 per cent in August, and a high of 20 per cent in June.

There was more encouraging news on the outlook for factory gate inflation, with a balance of 7 per cent expecting to increase rather than decrease output prices. This was the lowest since May 1994.

Sudhir Janankar, an economist at the CBI, said that with companies facing tough competitive conditions in both home and overseas markets, "this now seems set to restrain firmly their ability to secure price rises over the coming months".

The deterioration in the trade gap has now been evident since spring. In the three months to August, the non-EC deficit ran at pounds 2.6bn, compared with pounds 1.5bn in the previous three months.

The immediate cause is that underlying import volumes have risen sharply in the past six months while export volumes have been flat.

Excluding oil and erratics, the volume of imports rose by 5 per cent in the three months to August, while exports rose by 1 per cent.

On the import front, there are signs that the recent surge has been caused by a pick-up in investment. Capital goods imports increased by 16 per cent in the three months ending August compared with the previous three months. By contrast consumer goods excluding cars fell by 8.5 per cent. The yearly comparison of the three months ending August showed capital goods up by 27 per cent and consumer goods excluding cars up by only 1.5 per cent.

On the export front, what has happened is that Britain's exporters have been hit hard by the slowdown in the US economy which accounts for about a third of non-EU exports. In the three months to August, exports to North America were 7 per cent down on the previous three months. A rise in exports of 4 per cent over the same period to countries outside the OECD and OPEC was not sufficient to make up the shortfall in trade with North America.