Trade deficit widens as strong pound sees exports dip

Britain's trade deficit ballooned in July after the country's exports fell to their lowest level in four years as firms were hit by the strong pound.

The Office for National Statistics (ONS) said the export of goods fell by £2.3 billion to £22.8 billion in July, the lowest export figure since September 2010, led by a drop in exports of chemicals and manufactured goods.

The ONS said the goods trade deficit widened to £11.1 billion from £8.5 billion in June, which was more than economists had expected.

The overall goods and services deficit widened to £3.4 billion, four times its level in June.

Economists said this data taken together with weaker-than expected manufacturing figures also out today, represent a double blow to the economy.

Howard Archer, chief UK and European economist atIHS Global Insight, said: "A double whammy of bad news for the UK economy that does not bode at all well for gross domestic product growth in the third quarter."

Mr Archer added he had expected gross domestic product (GDP) growth to moderate from 0.7% in the second quarter to 0.6% in the third quarter, "but there is now a serious risk that growth could dip to 0.5% quarter-on-quarter or even lower".

He said: "It is evident that manufacturers are currently being particularly constrained by weakened foreign orders, which is at least partly a consequence of sterling's strength against the euro."

This week the pound hit a new seven-and-a-half year high on its trade-weighted index of currencies.

Economist Nina Skero at the Centre for Economics and Business Research added: "The pound remains relatively strong compared to most global currencies, making British exports less competitive.

"Despite some improvements in the eurozone economy, demand growth remains low in key European export markets including France and Germany."