Will More Stimulus Achieve the Bank of England's Goals?
The trade deficit increased to 4.1 billion pounds in October
According to the UK Office for National Statistics, the goods and services deficit was 4.1 billion pounds in October compared to 1.1 billion pounds in September 2015. The goods trade deficit stood at -11.8 billion pounds in October, whereas the services trade remained in surplus at 7.7 billion pounds.
With a rising trade deficit, the iShares MSCI United Kingdom ETF (EWU) fell 0.30% as of December 10. EWU has lost 7.4% from a year ago.
British companies British American Tobacco (BTI), BP (BP), Vodafone Group (VOD), and Royal Dutch Shell (RDS.A) have fallen 1.1%, 0.03%, 1.1%, and 1.4%, respectively, as of December 10.
Decline in chemical exports increases trade deficit in October
The widening trade deficit reflects a decrease in exports and an increase in goods imports in October.
Exports contribute about 28.4% of the UK GDP. The decline in chemical exports of 0.8 billion pounds was mainly due to a decrease in goods exports of 1.6% to 42.2 billion pounds in October 2015.
Imports of goods and services increased by 2.4 billion pounds to 46.3 billion pounds in October 2015. The increase was mainly due to imports of machinery and transport equipment, chemicals, and fuels.
UK trade deficit with the EU increases
In October, the United Kingdom reported growth of 6.4% in imports from EU countries, whereas exports increased 1.4%. The UK’s trade deficit with the EU has risen to 8.1 billion pounds in October compared to 7.3 billion pounds in September 2015.
Though October data indicates a decrease in exports, the recently released UK manufacturing report highlights an increase in export orders. With exports expected to rise, new orders and production levels should also increase. This reflects the strengthening economic recovery in the United Kingdom. To further boost economic growth, the Bank of England has maintained its bank rate at 0.5%.
To learn more, read Increased Mining Activities Lifted Industrial Production in the UK.
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