Trade deficit narrows

Analysts warned that the trade deficit narrowed in July due to a strong rebound in exports after the Jubilee bank holiday, but it is still set to rise to a record high as a share of GDP. The deficit, which shows the difference between the value of imports and exports, narrowed to £7.8 billion in July from £11.4 billion in June as firms caught up on sales after the extra day off. However, the trade deficit, which has been made worse in recent months by the soaring price of energy imports, remains high by historical standards. The average deficit in the 2010s was £2.2 billion; in the past two years, it rose to £4.4 billion.

The UK is a net energy importer and was subject to the surge in wholesale energy prices during the pandemic, which was later exacerbated by the Russia-Ukraine war and resultant sanctions. The deficit in fuel trading, including spending on oil and natural gas, rose to £5.6 billion in July, from £5.1 billion in June. That is more than three times the 2021 average of £1.7 billion. Exports of goods in July rose by 6.7 per cent, driven by rises in the exports of ships, mechanical machinery and vehicles to the United States and China.

"This pushed the 5.4 per cent rise in non-EU goods exports, while the volume of sales to the EU rose by 7.9 per cent. «The trade deficit will hit a record high as a percentage of GDP by the end of the year, according to Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics. She said that the trade deficit would reach enormous over the coming months,» she said. «For starters, futures prices suggest that the monthly trade deficit in natural gas, contained within the fuels component, will increase to about £8 billion by the end of this year, from £1 billion in July."

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