Cheap oil drove Britain’s trade deficit to its lowest level in nearly two years in January as the collapsing price of crude cut the cost of oil imports by £1.2 billion.
The deficit narrowed by £1.5 billion from December to £616 million, against forecasts for a £2.3 billion shortfall, as import costs fell by £2.5 billion against a £1 billion decline in exports.
Strong exports of services, such as architecture and consulting, continued to help the trade balance, hitting a record surplus of £7.8 billion. That was offset by an £8.4 billion goods deficit, its lowest reading since March last year. Even excluding oil, the goods deficit improved from £8.9 billion to £7.8 billion, the smallest since June 2013.
Economists said that the figures from the Office for National Statistics, although flattered by the oil price decline, pointed to a substantial “net trade boost”.
Samuel Tombs, UK economist with Capital Economics, said: “The trade figures bring more good news on the economy’s progress in rebalancing.”
Advertisement
Seen over a longer period, the improvement was even better. For the three months to January, the trade deficit nearly halved from £8 billion to £4.4 billion, compared with the previous three months, and was the smallest in more than 14 years.
In a sign that Britain is finally making headway in building an export presence outside the European Union, the ONS claimed that the fall in the three-month deficit to its lowest since October 2000 “mainly reflects a 7.3 per cent rise in exports of goods to countries outside the EU and falls in imports of goods from both EU and non-EU countries”.
However, concerns were raised about the durability of the improvement after sterling’s recent appreciation, particularly against the euro. The pound has surged by 15 per cent against all currencies in the past two years, 5 per cent in the past two months alone.
Since the start of the year, the pound has strengthened by 11 per cent against the euro, where 40 per cent of British exports are sold.
Chris Williamson, the chief economist at Markit, said: “Dig deeper into the numbers and a more disappointing picture of UK export performance emerges. The export trend for manufacturers has weakened in a sign that the strong pound is hitting demand for UK goods in overseas markets.”