Economics Update from John Birchall
Source: ONS
In some of the theories we use to describe foreign trade we note that price is important and related to that we include the level of the domestic exchange rate when compared with those of our major trading partners. The current UK trade figures therefore need some careful analysis.
With sterling around 25%weaker than it was before the credit crunch it could have been argued that UK exports would look attractive to overseas buyers. This would help business as it struggles with limited bank credit and low consumer demand.
Yet, in January 2010 the exports of goods fell almost 7% or £ 1.4bn. When the £3.8bn surplus on services is added our trade was ‘in the red’ to the value of £2.6bn – its largest gap since the summer of 2008.
It was not surprising to see sterling slide down against both the UD dollar and the Euro.
Maybe the dreaded snow had something to do with fall in January sales, as transport was affected by the closure of roads, the cancellation of ferries etc.
But is the sharp fall simply part of a trend that began many years ago? Is our manufacturing base now so small and uncompetitive? Colin Elis, a regular presenter at PAU student and teacher conferences states that ‘there is still no sign of the UK economy transforming into an export led economy any time soon’. He concludes by suggesting that net trade may not be the contributor to economic growth that some had hoped for. Others, including the CBI, have pointed to the reluctance of banks to grant credit as a factor in slowing down the ability of small-scale exporters to boost their sales – they struggle with cash flow problems and so cannot afford to self finance an export drive. The British Chamber of Commerce also points to a chronic lack of funding available from high street banks and say that this is causing some export-led producers to be priced out of markets – put simply a lack of credit and the high cost of what loans are available means that the fall in the exchange rate is not reflected in the prices customers are quoted.
If we then move away from trade and look at housing surveys it is clear to see that the Budget due on the 24th March will need to address the falls in confidence that are evident within the UK business sector.
Though we do not want to be ‘alarmist’ the chances of the ‘V’ become a ‘W’ are not receding.