Imports of energy, which are expensive, contributed to a larger trade deficit than anticipated at the beginning of the year.
The official figures show that the UK’s trade deficit with the rest the world increased by £2.2 billion, to £13.8billion in the three-month period ending January. The increase in imports of £900m was mainly due to the rise in oil and gas price at the beginning of the year.
The trade deficit increased from £2.6 billion per month to £3.1 billion, which was worse than the £2.4 that economists had predicted. The British trade deficit is a sign that Britain imports more goods than it exports.
The Office for National Statistics stated that the increase in fuel imports is due to increased imports from Sweden of refined oil and crude oil, as well as from Norway of crude oil. The Office for National Statistics said that there had also been a “substantial drop in services exports” in the UK, which marked a decline in its largest export category.
The ONS stated that despite the increase in energy prices worldwide, there is “no proof” that the disruption of Red Sea shipping routes has affected the country’s performance.
Since 2023, the manufacturing sector has experienced a decline as high energy costs, disruptions in supply and a weakening global economy have led to a reduction in demand for UK products abroad. Export demand fell again in February, according to the latest data collected by the manufacturing sector. Companies have reported shipping delays and increased costs due to the conflict on the Red Sea.
Rob Wood, UK chief economist at Pantheon Macroeconomics (consultancy), said that trade performance would improve throughout the rest of the calendar year, as Britain’s services exports with high value would outperform global goods prices which are dropping sharply in price.
Wood stated that the trade balance would be improved in 2024 if prices of goods rose less rapidly than those for services. The UK is a specialist in these areas. The cost of energy imports is expected to continue declining, but there are downside risks if the Middle East conflict intensifies.
“We think that the trade deficit, on balance, will shrink to around £25 billion from £36.6billion last year. This is well below the £66.8billion in 2022.”