LONDON, Dec 10: The British trade deficit soared to a record high in October as a consumer spending spree sucked in foreign imports and exporters struggled against a weak global economy and strong pound, official figures showed on Tuesday.
Britain chalked up a deficit of 3.56 billion pounds ($5.6bn) in October from a revised shortfall of 2.74 billion pounds the previous month — the highest shortfall since records began, the National Statistics office said.
A breakdown of the figures showed exports of goods fell 4.0 per cent to 14.9 billion pounds as Britain’s main trading partners grew sluggishly, while imports jumped 1.5 per cent to 18.4 billion.
Economists said the figures were worrying, and blamed the government’s lax fiscal policy for stoking up an unsustainable consumer boom.
“The figures highlight the fact that consumers are very over-leveraged,” said Commerzbank economist Nick Parsons.
“In effect people are taking out equity release loans on their properties to finance purchases of DVD players. That’s not really a sustainable position in the long-term,” he said.
With the annual rate of British house price inflation running at around 25 per cent, there has been a boom in the number of Britons taking out loans, secured on their properties, to pay for goods such as new cars and electronic devices.
Investec economist Philip Shaw said the trade figures “make fairly grim reading.”
Shaw said the latest numbers back up other recent evidence of the severe difficulties facing the country’s long-suffering exporters of manufactured products and other goods.
The British economy has weathered the global downturn better than many of its trading partners, but economists warned that imbalances within the economy could stymie a recovery.
“If the housing bubble bursts while the manufacturing sector is still pretty much in recession as well then we’ll see the UK economy slow down quite dramatically,” said BNP Paribas economist Iain Stannard.
But while many exporters have been calling on the Bank of England to lower interest rates, many economists believe that would only worsen the country’s problems since it would add fuel to the consumer boom.
Parsons said while Britain has in recent times had little difficulty in funding its current account deficit with a capital account surplus, in an environment of falling asset prices and worries over deflation it was no longer certain it would be able to do so.
He said with no reason to expect the country’s trade deficit — now running at around 4.0 per cent of gross domestic product — to begin to narrow any time soon, pressure on the British government to act to slow household consumption could begin to mount.
Parsons blamed the loosening of fiscal policy instigated by finance minister Gordon Brown for the current boom in consumer expenditure.
“They (the government) have done nothing to tackle the root of the speculative excesses of the housing market,” he said.
Instead of reining in spending, chancellor of the exchequer Gordon Brown last month admitted government borrowing was set to rise sharply to fund the Labour government’s ambitious spending plans.—AFP