City braced for fresh contraction

ExportsSuspicions that UK output declined in the final quarter of 2012 have been fuelled despite a narrowing in the country's trade deficit.

The gap for goods and services of £3.5 billion in November was better than £3.7 billion in October but economists said without a bigger improvement in December net trade will act as a drag on GDP in the fourth quarter.

Experts in the City have been on standby for a fresh contraction in GDP after disappointing activity figures from the services sector in December.

David Kern, chief economist at the British Chambers of Commerce, said: "Although the deficit has fluctuated over the course of 2012, the average of £3 billion per month is too large and shows that we are not yet seeing sufficient progress in rebalancing Britain's economy towards net exports."

The Office for National Statistics (ONS) said total exports in goods alone increased by £700 million or 2.9% to £24.8 billion in November, while total imports rose by £400 million or 1.1% to £34 billion.

The slight narrowing in the deficit was driven by an improvement in the balance with EU countries, in particular Germany after a 23% jump in exports in the month. The UK's deficit with non-EU countries was virtually unchanged at £4.5 billion in November.

Martin Beck, an economist at Capital Economics, said: "November's trade data means we continue to think that "triple-dip" will emblazon the headlines when the first estimate of GDP is released on January 25.

"And the weakness of the eurozone economy means that any support to the economy from the external sector is a distant prospect."