LONDON (Reuters) - Britain’s goods trade deficit unexpectedly widened in April as exports plunged, raising the threat of a third quarter of economic contraction and adding urgency to new measures to foster growth as trading partners in the euro zone weaken.
The country slid back into recession around the turn of this year, and more pain looms as a relentless debt crisis in the euro zone - the main market for Britain’s exports - hits trade and makes companies reluctant to invest and hire.
The Office for National Statistics said on Friday the goods trade deficit grew to 10.1 billion pounds ($15.70 billion) - the second-largest gap since records began in January 1998. That compared to a deficit of 8.7 billion pounds in March and confounded forecasts for a reading of 8.5 billion pounds.
“In broad terms, the numbers look disastrous,” said David Tinsley, economist at BNP Paribas. “As things are not going to get better abroad, supporting the domestic economy is pretty important.”
In policymakers’ latest bid to boost the economy, the Bank of England said on Thursday that Britain would launch a scheme to provide cheap long-term funding to banks to encourage lending to businesses and consumers, while the central bank would also activate an emergency liquidity tool.
The goods trade deficit with non-EU countries widened to 5.2 billion pounds in April from 4.2 billion pounds in March and against forecasts for a gap of 4.2 billion pounds.
Exports to non-EU countries fell nearly 9 percent on the month in volume terms, driven by lower sales of chemicals and cars.
There was also a record gap in goods trade with the European Union, which absorbs the lion’s share of Britain’s goods exports. Goods export volumes to the bloc dropped 6.5 percent, outweighing a 2.3 percent fall in imports from the EU.
“Yet again the euro zone crisis is beginning to have a bigger drag on exports and as a consequence a bigger drag on Q2 GDP numbers,” said Peter Dixon, economist at Commerzbank.
“Along with the extra public holiday, it doesn’t bode well.”
Although the National Institute of Economic and Social Research, a leading think-tank, estimated that Britain eked out 0.1 percent growth in the three months ending in May, an extra day off in June to celebrate Queen Elizabeth’s Diamond Jubilee could wipe out any increase in quarterly output.
Separate non-seasonally adjusted ONS data showed that construction output fell 8.5 percent year-on-year in April.
A 4.8 percent slump in construction in the first quarter compared to the previous three months drove Britain deeper into recession early this year than initially thought, and an unexpected fall in manufacturing output in April had already raised the risk of a longer recession.
Additional reporting by Fiona Shaikh and Sven Egenter; Editing by Catherine Evans