In response to official trade statistics released today, Allie Renison, Head of Europe and Trade Policy at the Institute of Directors, said:
“The latest figures show that sterling’s depreciation began to affect UK trade with the EU and the rest of the world in the two months after the referendum, particularly trade in goods, which tends to be more price-sensitive and composed of imported parts. The cost of imports has spiked, rising by 5.5% overall and 7.5% rise in the goods category.
“The rise was mainly driven by machinery and manufactured goods rather than by fuel or oil, suggesting that the pound’s fall is indeed the main culprit driving up import prices. This could be influenced by incomplete data, but it seems more likely to reflect currency volatility and could point to a longer term trend. Unless sterling sufficiently recovers, it is possible the higher cost will eventually be passed on to consumers, raising inflation and eating into real wages.
“Although exports rose marginally between July and August, and on the three months prior, the pace at which imports have risen significantly outstrips this. Sterling’s depreciation has had an immediate effect on imports and the uncertainty surrounding the UK’s future trading relationship with the EU has taken the edge off the competitive boost that currency depreciation normally gives exporters.
“A rise in imports is not necessarily a bad thing. Many UK firms need imports to make their products more competitive and high import volumes can be a sign of robust domestic demand, but the net drag on trade will start to weigh on the UK economy. This further underscores the need to ensure the UK Government sends out confidence-boosting messages. The Government must seek a good compromise trade deal with the EU that minimises the scope for trade barriers.”