The FINANCIAL — A steep fall in imports caused Britain’s trade deficit to narrow in May to its lowest in almost two years, rekindling hopes that trade will help boost economic growth, according to Nasdaq.
The gap between the value of goods and services the U.K. sold abroad and what it bought was 393 million pounds ($604 million) during the month, the Office for National Statistics said on July 10. This marks the second month in a row in which the trade deficit has narrowed sharply, even though economists polled by The Wall Street Journal had expected the deficit to grow wider again.
The trade deficit was smaller due to imports dropping to their lowest level in more than four years, official figures showed. The ONS warned, however, that it was in part due to a drop in imports of ships, which are large purchases prone to up-and-down swings.
May’s figures are a hopeful sign that trade will make a positive contribution to economic growth after being a major drag in the first quarter of the year. Nevertheless, Britain’s prospects for 2015 are somewhat dampened by the fact the gulf narrowed due to falling imports rather than companies ramping up their sales abroad. In fact, exports of goods actually suffered a small decrease during the month.
Recent surveys suggest U.K. companies are struggling with the strong value of the pound compared to the euro, which makes their products more expensive in the single currency area–Britain’s number one market overseas. This is an especially large burden for manufacturers, which decreased their output 0.6% in May, official data showed this week.
The euro started falling against other major currencies when the European Central Bank announced in January its plans 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 price and drives investors into either riskier assets–making funding cheaper for companies–or other currencies, which devalues the euro and makes it easier for companies to export.
The heightened Greek crisis is yet another blow for U.K. exporters, as it further weakens the euro while at the same time hampering economic recovery in the eurozone.
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