The UK trade deficit widened in January from £1.2 billion in December to £1.8 billion but this is still far lower than the monthly average for 2011.
The figures were boosted by record exports to countries outside of the European Union such as Russia, Japan and the USA. Exports to non-EU countries increased to £12.9 billion from £12.4 billion in December buoyed by higher exports of cars. This is the highest level of exports to non-EU countries since records began in 1998.
Imports were up by £0.6 billion to £16.6 billion and import prices rose by 0.9 per cent from December. The volume of exports rose by 2.2 per cent from December whilst imports increased by 1.8 per cent. The trade deficit on goods widened by just £0.3 billion to £7.5 billion in January.
The figures are encouraging for the Chancellor George Osborne ahead of next week’s budget as he tries to rebalance the economy. Mr Osborne needs growth from exports and other parts of the private sector to help mitigate the effects of public sector spending cuts.
Howard Archer, Chief UK & European Economist at IHS Global Insight said: The January trade data are relatively encouraging, with a 4.4% rise in goods exports to non-EU countries boosting hopes that exports can make a decent contribution to growth over the coming months. However, a 0.8% dip in exports to the key Eurozone market is a reminder that events there will have a key role to play in how much exports can help the UK economy.
The export figures were helped by an increase in oil exports to European countries such as Germany and the Netherlands. However, the UK also imported more from countries including Russia, Saudi Arabia and Nigeria.
Oil prices also put a question mark over the likely direction of inflation in the UK. Inflation is widely expected to fall towards the Bank of England’s target of two per cent but higher oil prices would reduce the fall in inflation.
Overall, exports to the EU were down by 0.8 per cent reflecting the continuing uncertainties in the economy in Europe and the prolonged debt crisis.
Mr Archer said: “The trade data contained some bad news on the inflation front, with import prices pushed up significantly by higher oil prices.
“This reinforces concern that higher oil prices will prevent consumer price inflation from falling back as quickly or as far as had been hoped for. Sticky inflation would maintain the squeeze on consumers’ purchasing power.”
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