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Economy in Brief

by Carol Stone April 12, 2007

UK trade data came out today for February, with the goods balance, -£6.8 billion, somewhat larger than the -£6.5 billion expected in at least two forecast surveys. Exports eased very slightly to -£18.4 billion from -£18.5 billion in February. Imports edged up to -£25.2 billion from -£24.9 billion.

Press reports highlight the recent strengthening of the pound as putting pressure on exports, making it harder for manufacturers to sell their goods abroad. This is perhaps true. They cite evidence from some erosion in the BCC survey, also reported today. Manufacturers' export orders "fell" to a +20% reading in Q1 from +21% in Q4 and +28% in Q3 2006. However, we notice that the BCC number has generally been lower than this and in fact has not been as high since 1996 (see graph 3).

Similarly, the value of exports is "low" only in relation to the inflated figures for the spring of last year. Last time we wrote on UK trade, on November 9, we discussed in detail the artificiality built into the UK trade data by widespread VAT fraud, known by the acronym "MTIC". As seen in the table below and in graph 2, this practice has been sharply curtailed. Absent its effect, exports have been essentially flat since last summer and comfortably above any prior period.

The same pattern holds for imports. Adjusted to remove the MTIC, they too have been steady for several months. We'd like to say the strong pound has something to do with this, and perhaps it does. There's also a strong correlation between imports of consumer goods and UK retail trade. The BCC data show a dip for Q1 in manufacturers' "home" orders, that is, for domestic customers, but these too have run stronger in the last two quarters than anytime since the mid-1990s.

So possibly, a strong currency is pulling down on the UK economy, but available data seem inconclusive in establishing this at present. These trade figures and business activity seem instead to indicate sustained, firm trends in UK activity.

Monthly Averages
UK Trade in Goods (SA, Mil.£) Feb 2007 Jan 2007 Year Ago
2006 2005 2004
Trade Balance -6791 -6402 -7432 -6974 -5732 -5074
Exports 18407 18497 21306 20379 17635 15906
  Capital Goods 3104 2993 5729 4637 3178 2453
  Oil (SITC 33) 1542 1559 1757 1927 1650 1350
Imports 25198 24899 28738 27353 23367 20981
  Capital Goods 3554 3559 7122 5826 4103 3352
  Oil (SITC 33) 1710 1978 1958 2235 1832 1276
Balance less MTIC -6800 -6300 -7400 -6975 -- --
Exports less MTIC 18300 18500 17700 17983 -- --
Imports less MTIC 25100 24800 25100 24958 -- --
BCC Survey Q1 2007 Q4 2006 Q1 2006      
Home Orders 23 27 13 18 7 14
Export Orders 20 21 22 22 11 16
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