Pound falls as UK trade deficit widens


The pound fell sharply against other major currencies following news that the UK's trade deficit has widened.

The pound fell nearly two cents, or 1.2%, against the dollar at $1.4646, and by a cent against the euro.

Earlier, figures from the Office for National Statistics (ONS) showed that gap between the UK's imports and exports widened last month.

The value of imports exceeded exports by £3.7bn ($5.5bn), up from £2.2bn gap recorded in February.

The ONS said the swings in the gap had been exacerbated by January's bad weather.

That delayed the export of some goods until February, which helped to flatter that month's figure. Even so, the gap was also worse than in March last year.

Exports crept up by just 1%, whereas imports rose by 5.2%.

Although the falling pound suggests reduced confidence in the UK economy, it will also help exporters by making UK goods cheaper for foreign buyers.

The pound fell against the euro to 1.1650, and was also down against the Japanese yen, and a range of other foreign currencies.

Image caption,
The March figures show a huge surge in imports relative to exports

On Wednesday, the Bank of England governor, Mervyn King, said the UK's economy should shift its weight towards exports, rather than relying on domestic consumption.

Economic experts expressed concern over rising trade deficit.

Ross Walker, UK economist at RBS, said: "These are disappointing numbers. I'm sceptical we're going to see any significant contribution to growth this year from net trade."

He said the worsening picture was particularly worrying, given the value of the pound: "The much-needed rebalancing is not happening as quickly as we would have hoped, especially given the weakness in sterling."

Weak future

The rise in imports was broad-based and driven by a jump in imports of intermediate goods such as mechanical and electrical engineering components, as well as cars, chemicals and oil.

Exports of chemicals, which helped to shrink February's gap, fell sharply on the month.

Vicky Redwood, economist at Capital Economics, said the numbers were bad for the future of the economy: "Recent events in the euro-zone - the UK's biggest trading partner - clearly cast a shadow over the longer-term prospects for UK exporters."

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