UK hit by huge trade deficit

Fewer goods are being sold abroad

The UK has racked up its biggest monthly trade deficit in goods since records began in 1697.

In October, the deficit was £3.6bn ($5.7bn), far worse than the £2.7bn shortfall economists had been expecting.

When exports from the recession-stricken manufacturing sector were combined with those from the bigger services sector, the UK's overall trade deficit in October was £2.6bn, figures from the Office of National Statistics (ONS) showed.

The overall trade deficit in goods and services is widening, the ONS said.

'Poor state' of manufacturing

UK manufacturing, which makes up about one sixth of the British economy, has been in recession for several years.

In recent months, British exporters have suffered from slow growth in other European economies, which has reduced demand for their products.

"These are pretty bad numbers. It proves how volatile these numbers are and underlines the poor state of the manufacturing sector," said George Buckley, a UK economist at Deutsche Bank.

Interest rates are already at their lowest level for 38 years, but manufacturing employers have regularly appealed to the Bank of England to make further cuts.

However, the problems of the services sector - which makes up two thirds of UK plc - have outweighed these appeals.

Services dominate

The Bank's rate setting committee has been trying to avoid pushing house prices higher, or encouraging consumers to pile too much debt onto their credit cards.

Consumer spending helped push imports in October 1.3% higher than the previous month to £18.4bn.

But exports fell nearly 4% to £14.9bn, hit by a drop in exports to European Union (EU) countries, particularly France and the Republic of Ireland.

The goods trade deficit with the EU grew to £1.2bn in October, compared with £891m in September.

The goods trade deficit with non-EU countries also grew, to £2.3bn from £1.8bn.

The trade surplus in services in October was little changed from the previous month, at £941m compared with £982m.

'No sign of recovery'

There is little hope of an immediate recovery in UK manufacturing output, according to the findings of a survey by the Engineering Employers' Federation (EEF) in November and December

The survey forecast that jobs and capital investment would decline further as the squeeze on engineering firms' profit margins continued.

The decline in engineering output is now expected to continue into the early months of 2003, with growth of just 1.1% for the whole year, the EEF said.