UK trade deficit to continue slimming, supporting pound

(Alliance News) - The UK's trade deficit will continue to narrow, easing some pressure on sterling, Pantheon Macroeconomics predicted on Friday.

Import prices will fall faster than exports, which will favour the UK's trade gap. Exports volumes may yet be hurt by demand worries and Brexit uncertainty, however.

The UK's overall trade deficit narrowed to GBP4.79 billion in June, from GBP7.66 billion in May. Imports fell 3.9% on-month in June to GBP71.14 billion from GBP74.01 billion. Exports were largely unmoved at GBP66.35 billion from GBP66.36 billion.

With the EU alone, the trade deficit widened to GBP12.68 billion in June, from GBP11.80 billion in May. Imports rose 3.2% to GBP27.48 billion in June, from GBP26.64 billion in May. Exports to the EU fell 0.3% monthly to GBP14.80 billion from GBP14.85 billion.

The non-EU trade deficit fell to GBP2.77 billion in June from GBP6.62 billion in May, beating the FXStreet-cited consensus of GBP6.39 billion.

Imports from non-EU nations slumped 16% on-month to GBP19.93 billion. Exports increased by 0.5% to GBP17.16 billion.

"The trade deficit should continue to narrow, minimising sterling's vulnerability," Pantheon analyst Gabriella Dickens predicted.

"Granted, sluggish growth in the US and Chinese economies over the next year will weigh on demand for UK exports, and Brexit rules and uncertainty will remain a headwind. But import prices - which have fallen by 12.6% since September - likely will continue to drop more quickly than export prices - which have fallen by just 2.7% - due to the drop back in energy prices and the stronger pound."

The pound has risen some 5.0% against the dollar so far in 2023, trading at GBP1.2703 on Friday morning.

Pantheon expects the UK's trade deficit to amount to GBP55 billion in 2023, before fading to GBP40 billion in 2024. Both would be markedly below 2022's GBP86.6 billion. This would help "reduce the sensitivity of sterling to changes in overseas investors' confidence" as the next UK general election looms, Dickens added.

By Eric Cunha, Alliance News news editor

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