View from City Road: Conundrum of the correct statistic

It appears that last year's trade figures - which everyone presumed hugely understated the extent of Britain's trade imbalance - were not wrong after all, or not by much. The long-awaited results of an investigation into the new system for collating the figures by Customs & Excise and the Central Statistical Office were published yesterday.

Far from revealing a multi-billion- pound black hole in Britain's trade position, the CSO raised its estimate of last year's deficit by just pounds 257m. The CSO investigation was launched because of suspicious divergences between the behaviour of Britain's trade with European Union countries and our trade with the rest of the world.

There is no obvious reason why the trend in imports into Britain from within and outside the EU should differ from each other, provided that sterling's exchange rate with EU and non-EU currencies does not diverge dramatically. The figures nevertheless show that imports from the EU in the three months to February were 3.5 per cent lower than in the previous three months, while imports from outside the EU rose by 4.5 per cent. To say the least, this looks odd.

The phenomenon cannot, however, be explained by a large amount of imports slipping under the net without being measured. It is apparently the case that we record more imports from our EU partners than they record exports to us. The probable explanation is much more likely to be one of faulty seasonal adjustment of the intra-EU figures.

Not that this absolves the British economy of its long-term structural problems. The trade deficit remains large for this stage of the economic cycle because consumer spending takes up an abnormally high share of national spending. The balance of payments will remain an important constraint on the strength and durability of economic recovery.