A bad set of trade figures just ahead of the election. For those with long enough memories, news that Britain’s trade deficit almost doubled in February harks back to the 1970 election, when Harold Wilson’s campaign was jarred by a rise in imports caused by the arrival of two new Boeing jumbo jets.
Like David Cameron, Wilson had been going around the country insisting that his long-term economic plan was working. The widening of the trade deficit, though, cast doubt on whether the government’s export drive following the devaluation of the pound in 1967 was actually delivering.
As it happens, the rebalancing of the economy was a lot more successful under Labour in the late 1960s than it has been under the current government since 2010. In 1970, Britain had a small trade deficit in goods worth 0.2% of national income. That became a surplus of 0.7% of GDP once services were included.
In 2010, the year the Conservative-Liberal Democrat coalition arrived in office, the deficit in goods was 6.3% of GDP and there was a deficit of 2.4% of GDP for goods and services combined. By 2014, the deficit in goods was 6.7% of GDP, while the deficit for goods and services combined showed a slight improvement to 1.9% of GDP.
What’s more, the latest figures are far from encouraging. Exports in February were at their lowest in four years, while the deficit with the eurozone in the last three months was the highest since comparable records began in 1998. Neither the strength of the pound nor the softening of demand in the US is helping matters.
Looking back at the historical data, the long-term deterioration in Britain’s trade position is glaringly obvious. It is not just that it has been 32 years since there was a surplus in trade in goods. It is that each economic cycle has started with a bigger trade deficit. The recovery from the recession of the early 1980s began with a surplus on trade in goods and services of 2% of GDP. When the recovery began from the downturn of the 1990s, there was a combined deficit of 0.3% of GDP. When the economy started to pick up from the slump of 2008-09, the deficit was 2.4% of GDP.
Times change. Back in 1970, the trade deficit was front-page news. A chancellor who said his economic plan was working while presiding over a trade deficit worth almost 7% of GDP would have been derided. Today, Britain’s ability to pay its way in the world hardly rates a mention in the election campaign. That’s a pity.
