Both the UK and US are exporting more – that’s the good news, but despite this the balance of trade deficit rose in April, on both sides of the Atlantic.
In the UK, the improving economic outlook in Europe led a 2.5% rise in exports across the channel. But despite this, overall our deficit widened to Â£5.75bn. The recent rises in sterling got the rap. The key factor behind determining the level of a currency is the rate of interest compared to the level in its trading partners. The US rate is now higher than the UK level and the Eurozone rate is steadily climbing but the UK level has been unchanged for ten months – you would have thought this would have led to a fall in sterling, but in fact the opposite has been happening.
Meanwhile, in the US, exports to China and Canada closed in on a new record. The snag is that imports rose even higher, with US – China trade deficit hitting $17bn. The high price of oil also hit hard, accounting for much of the worsening in the US trade figures.
In total the US deficit hit $63.4bn, 2.5% up on March. And yet markets might well react positively to the figures today as they had expected even worse.
© Investment & Business News 2013