UK Trade Deficit Widens to Largest Amount in Decades
THE TAKEAWAY: UK trade deficit reaches record highs -> BoE governor warns of Europe’s ‘black cloud’ -> Sterling bounces off support
The United Kingdom trade balance has reached its highest point in decades as exports to both EU and non-EU countries fall. The total trade balance for April was reported at -4.4 billion pounds, much lower than the expected -2.7 billion pounds. March’s trade deficit was also raised to 2.96 billion pounds according to the UK Office for National Statistics.
The seasonally adjusted volume of UK exports dropped 7.1% in April, as imports fell 3.0%. Trade in goods saw a deficit of 10.1 billion pounds while services trade had a surplus of 5.7 billion.
Surprisingly, the trade deficit with non-EU countries widened by 1 billion pounds in April, to 5.2 billion, while trade deficit with EU countries only widened by 0.3 billion. Exports to non-EU countries fell by 10.3%, while exports to EU countries were down 6.8%.
Although the trade deficit widened the most with non-EU countries, Europe has been the word for Bank of England policy makers over the past month. Just yesterday, BoE Governor Mervyn King warned of the ‘black cloud’ coming out of Europe and said pressures for additional stimulus are growing. King also spoke of a sterling liquidity facility to aid banks and start a credit-easing operation to boost lending by 80 billion pounds.
Earlier this morning, GBP/USD dropped below 1.5500 as more details were released about the new efforts to provide liquidity to banks. Yet, right as the surprisingly large trade deficit was reported, cable found support at 1.5475, erased earlier, losses and is now trading back above 1.5500. This might have been part of a larger trend of risk currencies finding support in today’s session.
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