Like every other piece of economic news over the next couple of weeks, the trade data for November was carefully scrutinised for its likely impact on growth in the final three months of 2012. The City is pretty evenly split on the issue of whether Britain will have a triple-dip recession and each new nugget of information is now scrutinised for clues as to whether gross domestic product rose or fell.
For what it's worth, the trade figures were mildly negative. Yes, there was a small fall in the deficit in November, but what really matters is the difference between the shortfall in the third quarter and the shortfall in the fourth quarter. There will need to be a substantial narrowing of the deficit in December in order to prevent the quarterly trade gap from widening.
The bigger picture is that there has been little change in the trade deficit for the past two years. Just like the economy, the UK's trade performance has flatlined, with a quarterly deficit excluding oil and so-called erratics (items such as aircraft and precious stones) bunched in the £21bn-24bn range. Any benefit from the 25% depreciation in sterling in the two years following the start of the financial crisis in 2007 has been wiped out by the crisis in the eurozone and the slowdown in global trade.
Any rebalancing of the economy – and it is certainly not happening at present – has to start from a position where Britain is running an annual trade deficit in goods of close to £100bn. The shortfall in goods is being aggravated by a worsening oil balance, with the deficit likely to reach £4bn in the final three months of 2012. The days when the North Sea could be relied on to cover up the deficiencies of manufacturing are long gone.
The one bright spot in the trade figures was the strong performance of services, which has been running quarterly surpluses of around £17bn throughout 2012. But to the extent that this performance is the result of the financial services sector, which is concentrated in London and the south-east, this has tended to amplify Britain's regional imbalances. The trade figures demonstrate clearly that the UK has a deep north-south split, which is getting wider and wider.
