Trade balance is set to hit new low

The UK’s ballooning manufacturing deficit is causing alarm as domestic goods lose out to products from countries with lower interest and exchange rates.

Monthly trade figures, due for release on Thursday, were expected to indicate the balance of trade sliding deeper into the red to a full-year manufacturing deficit of around £25bn. The deficit stood at £20.9bn in 1999, having more than doubled since 1997 from £7.6bn.

Business leaders this week repeated their claim that the strong pound, weak euro and high interest rates were the underlying cause for the deficit.

Confederation of British Industry associate director of economics Sudhir Junankar said: ‘There has been a massive deterioration since the UK first went into visible deficit at the start of the 1980s, the first since the industrial revolution. There has been a sharp deterioration ever since.’

Engineering Employers’ Federation chief economist Stephen Radley said although export volumes were holding up, import volumes were increasing, partly as manufacturers buy more components from overseas to reduce the impact of the strong pound. ‘The situation seems to be getting worse and there is no sign of an improvement,’ he said.

The warnings follow a report suggesting the UK’s balance on visible trade is set to worsen, with a £32.3bn deficit in 2000, £35.5bn in 2001 and £36.9bn in 2002. But the report also forecast interest rates in developed economies increasing to prevent their economies overheating.