UK's trade in the month of May suffered a setback on account of anxiety that the economy faced ahead of EU's referendum. Exports slumped, as polls dodged between a 'Brexit' and a 'Bremain', pulling down global sentiments. Even as results have come out last month, consumer and investor sentiments seem grayish to support trade in the near term.
The deficit in goods and services widened to 2.3 billion pounds (USD3 billion) from 2 billion pounds in April, data released by the Office for National Statistics showed Friday. Exports fell 4.4 percent with shipments of goods alone dropping 8.2 percent. Total imports declined 3.5 percent.
As the shock vote to leave the European Union hits consumer confidence and threatens business investment; trade, a consistent drag on growth, may emerge as a bright spot if the sharp fall in sterling boosts demand for British exports. The risk is that key markets in the EU weaken in response to Brexit. The pound’s depreciation is also likely to push up the value of imports, Bloomberg reported.
Before the referendum, some policymakers of the Bank of England were concerned that weak productivity could cause inflation to accelerate if wage growth picked up. After the ‘Out’ vote, Governor Mark Carney has expressed fears that any disruption to trade and investment might damage the economy’s underlying productive potential.
Meanwhile, the sterling has fallen more than 10 percent on a trade-weighted basis and hit its lowest against the US dollar on Wednesday. Against such a backdrop, trade deficit is expected to widen over the next few months as the cost of imports surges, but may help it to narrow in the longer term if a cheaper domestic cost base allows British firms to find new markets abroad.
