U.K. Trade Gap Narrows On Car Exports; Construction Output Slumps

The U.K. visible trade deficit narrowed in August as car exports reached a record high and imports decreased from July. However, the deficit remained at higher levels. Elsewhere, the sharpest decline in construction output since late 2012 also signaled weak contribution to the economy in the third quarter.

The deficit on trade in goods fell to GBP 11.1 billion from GBP 12.2 billion in July, the Office for National Statistics reported Friday. Nonetheless, it was well above the expected shortfall of GBP 9.9 billion.

Exports of goods climbed GBP 0.8 billion to GBP 23.6 billion in August. The increase was attributed to a GBP 0.6 billion growth in shipment of cars to a record high of GBP 2.4 billion.

Meanwhile, imports fell GBP 0.3 billion to GBP 34.7 billion.

IHS Global Insight Economist Howard Archer noted that the July/August data highlight that the trade sector remains a major concern for the UK even though the trade deficit came down markedly in the second quarter and net trade made a strong positive contribution to second quarter GDP growth of 0.7 percent quarter-on-quarter.

The trade deficit with EU nations was unchanged at GBP 7.4 billion, while that with non-EU countries declined to GBP 3.8 billion from GBP 4.8 billion.

The balance of trade in services showed a surplus of GBP 7.9 billion versus a GBP 7.8 billion surplus a month ago. As a result, the total trade shortfall narrowed to GBP 3.3 billion from GBP 4.4 billion in the previous month.

Another report showed that construction output dropped 4.3 percent in August from July, when it fell 1 percent, confounding expectations for a 1 percent gain.

The pace of decline was the fastest since December 2012, when output decreased 5.1 percent.

Year-on-year, construction output declined 1.3 percent in August, defying forecasts for 1.4 percent growth.

Paul Hollingsworth at Capital Economics said the latest figures add to other evidence suggesting that the recovery slowed in the third quarter, and remained unbalanced.

However, with consumer and business confidence remaining strong, real wages rising robustly and credit conditions improving, the economist remains confident that the recovery will regain pace soon.

The Bank of England expects the economy to expand 0.6 percent in the third quarter.