The FINANCIAL — Britain’s trade deficit with the rest of the world narrowed in April to its lowest in more than a year, official figures showed on June 9, but continued weakness in the export of goods to eurozone countries still bodes poorly for U.K. factories, according to Nasdaq.
The gap between the value of goods and services the U.K. sells and what it buys abroad was 1.2 billion pounds ($1.8 billion) during the month, according to the Office for National Statistics, the narrowest since March 2014. Economists polled by The Wall Street Journal last week were expecting the trade deficit to be twice as wide.
The deficit narrowed mainly due to a sizable fall in imports of goods, which dipped to their lowest in four years and drove the trade deficit in goods to narrow to GBP8.6 billion–compared with GBP10.7 billion in March. Exports also edged up slightly, the ONS said, but were mostly driven by a rise in the sale of organic compounds to the U.S.
“The sharp narrowing of the U.K. deficit in April is reassuring news,” said Vicky Redwood, analyst at Capital Economics. “It is now possible that net trade actually boosts” growth during the second quarter.
However, official figures confirmed that exports of goods to the eurozone–Britain’s number one market abroad–remain weak. This spells bad news for manufacturers, which had a disappointing first quarter of the year and struggled to sell their production overseas.
In recent surveys, factories quoted the strength of the sterling against the euro as a major hindrance for their exporting business, as it makes British products more expensive in the single currency area. This led trade to become a major drag on the U.K. economy into 2015.
The euro has taken a large tumble against other major currencies since the European Central Bank announced in January its flagship scheme to buy euro-denominated sovereign bonds–a policy known as quantitative easing or QE–in a bid to revitalize the economy of the 19-nation bloc. By purchasing government bonds, the ECB pushes up their prices and drives investors into either riskier assets–making funding cheaper for companies–or other currencies, which devalues the euro and makes it easier for European companies to export.
Since the central bank took action, inflation in the single currency area has come back from negative rates to a positive 0.3% in May. Although the cheaper euro has so far hampered Britain’s efforts to ramp up exports, economists are hopeful that a narrower trade deficit into the second quarter of 2015 is a sign that increased demand from a stronger eurozone is regardless starting to benefit U.K. exporters.
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