The UK trade deficit measures the difference between imports and exports. If there are more imports into the country than exports out of it, then there is a deficit. It takes time to measure correctly, and the Office for National Statistics (ONS) has just announced the July figures. The trade deficit for July has dropped from £5.6 billion in June to £4.5 billion in July.
This deficit difference between the two months represents a 2% increase in exports compared to imports. This represents exports of £43.8 billion. Imports dropped over the month by 0.5% to £48.3 billion. The ONS stated that it was too early for firm conclusions to be drawn with respect to the effects of Brexit on these figures. Immediately after the June 23 vote, there was a rapid drop in the value of the pound which would make UK products cheaper to importers.
The UK trade deficit, which reflects the difference between imports and exports, shrank to £4.5bn in July from £5.6bn the previous month, the Office for National Statistics (ONS) said. By July, the UK pound had dropped by 15% against other currencies compared to the same time in 2015.
This depreciation of sterling should boost exports and help reduce the balance of payments, improve the general competitiveness of UK manufacturing and cut the trade deficit. However, in practice, as the value of the pound depreciates it costs UK companies more to import raw materials from abroad. This increases the price of production and can largely wipe out the benefits gained.
Another issue related to this balance is the state of UK manufacturing and its competitiveness in the world markets. The UK is not the manufacturing power it once was. Union strife and government interventions have significantly reduced the ability of UK to industry compete in world markets – what is left of it that is.
So a weak pound does not stimulate the country as much as it once did. The UK must work on becoming a world power again in manufactured goods and stop relying on commercial products and tourism for its income. The UK trade deficit dropped, sure, but not because of increased exports.