Awful trade figures bode badly for Osborne’s “export-led recovery”
George Osborne’s economic strategy is based on “rebalancing” the economy away from consumer and government spending, and towards exports and business investment. This policy was emphasised just last week in a major speech by Nick Clegg.
With consumption set to be hit by falling living standards, higher unemployment and slower wage growth, and with public spending facing massive cuts, the Government is betting big on a pick-up in exports to drive growth.
So today’s awful trade figures (pdf) for December are very bad news for the Coalition.
The UK trade deficit in goods and services – the difference between what we export and what we import – reached £4.8bn in December: the highest level since August 2005.
But back in August 2005 the UK economy was doing rather well and so was sucking in imports from abroad. With a much weaker domestic economy in December 2010, one would expect a stronger trade performance.
Whilst it would be wrong to put too much emphasis on one monthly set of figures – and while the snow may have depressed exports, and the coming VAT rise increased imports – the trend is worrying.
After improving in 2008 and the first half of 2009, the UK trade deficit has been expanding again since the second half of 2009. The pace of decline has increased since September.
In 2010 as a whole UK exports increased by £38.5bn but this was more than offset by imports growing by £53.3bn.
The UK exports twice as much to struggling Ireland as it does to booming China and the crisis-hit Eurozone remains the UK’s largest trading partner. With prospects for growth in our major export markets looking weak it’s hard to see how exports can drive any recovery.
Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.
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