Trade deficit widens to £2.5bn

Britain went deeper into the red in its trade with the rest of the world in April, as exports of goods fell and imports jumped to a new record. The deficit climbed to £2.5bn from £1.9bn the previous month.

Britain went deeper into the red in its trade with the rest of the world in April, as exports of goods fell and imports jumped to a new record. The deficit climbed to £2.5bn from £1.9bn the previous month.

However, the goods deficit with non-EU countries narrowed in May, shrinking to £1.8bn from £2.3bn, a lower shortfall than most City economists had been expecting. Despite the strength of the pound, the underlying trends in import and export volumes revealed by yesterday's figures were more favourable than the headline totals suggested. Geoffrey Dicks, UK economist at Greenwich NatWest, said: "The underlying trade position is slowly on the mend. Trade volumes are doing remarkably well."

Underlying export growth has been rising for more than a year, suggesting exporters are cutting their margins to safeguard market share. Recent official figures for the engineering industry confirmed the pain being inflicted on profit margins. They showed the volume of engineering exports in February to April was 3.7 per cent higher than a year earlier, but the value of overseas sales was down 1.8 per cent. Mark Swift of the Engineering Employers' Federation said: "We have calculated that export margins in the industry are at a 25-year low. The competitive pressures are such that companies are taking a loss just to stay in markets."

In the three months to April, the total volume of imports into the UK - excluding oil, ships and aircraft - was flat, while the volume of exports rose 3.5 per cent. In year-on-year terms export volumes were up 12 per cent compared with a 9 per cent increase in imports. The UK's trade in services remained in surplus during the month. It rose to £927m from £792m in March.