Responding to official trade statistics, showing that total trade deficit widened by £2bn between May and June to £4.6bn due to increases in imports, Allie Renison, Head of EU and Trade Policy, said:
“The UK’s trade deficit keeps gradually widening, predominantly due to import rises keeping pace with, or even outstripping, exports in the most recent data. As we now have a year of data since the referendum, we can see a trend showing imports have not yet started to drop, despite the plunge in sterling.
“The steady rise of imports most recently is in part due to services, where there is a natural seasonal uptick in areas such as tourism and travel services. However, what these statistics also show is that UK firms may have a reliance on foreign imports due to not being able to easily find alternative domestic substitutes. Imports are critical to production for many British companies that export goods, and are also often a sign of robust domestic demand.
“As we outlined in our Navigating Brexit report in February, the ability of exports to rise substantially in response to sterling’s drop is likely limited by the fact that many orders are priced in foreign currencies, as confirmed by ONS’s analysis today. It is, therefore, unlikely that we are going to see a substantial narrowing of the overall trade deficit anytime soon. However, we should not be alarmed by the overall headline figure if exports and imports continue to rise together.
“Exports to the EU have steadily risen in recent months, an area of our trade we should closely monitor as we move into trade negotiations with Brussels. Once our new trade relationship with the EU is finalised, the UK can focus more easily on advancing new trade agreements with the rest of the world, which is the order our members favour. However, the Government should also use the opportunity of a transitional period to work with industry in developing a strategic framework for how best to pursue those opportunities both in the short and longer term.”