Britain shows little signs of rebalance

Britain's latest exports data showed little signs of the country's economic rebalance, as export growth remained sluggish and the pound sterling's strength overshadowed its outlook, according to data published Thursday.
The British deficit on trade in goods and services was estimated to have been 2.4 billion pounds (4.1 billion U.S. dollars) in May, significantly larger than 2.1 billion pounds a month earlier, the Office for National Statistics (ONS) said.
Britain registered a 9.2 billion pounds deficit on goods trade, and an estimated surplus of 6.8 billion pounds on services in May, data showed. The trade deficit was larger than the market estimation consensus of 1.6 billion pounds.
The exports of goods increased by a mere 0.1 billion pounds between April and May 2014 to 24.1 billion pounds, while the import of goods increased by 0.5 billion pounds to 33.3 billion pounds, said the ONS.
In the three months to May 2014, the export of British goods inched up by 0.1 percent to 72.6 billion pounds, and import of goods increased by 0.5 percent to 98.9 billion pounds. The deficit on trade over the period was 26.3 billion pounds, figures also showed.
May's trade figures provided more disappointing news that manufacturers may be struggling to cope with the pound sterling's strength as well as other headwinds, commented Samuel Tombs, British economist at Capital Economist.
Firstly, the adverse impact of the pound sterling's 12 percent appreciation over the past year has probably not been fully felt yet. There are also signs that the eurozone's recovery may be losing what little steam it had, said Tombs in an analysis.
"In addition, with relatively import-intensive investment and consumption continuing to drive Britain's economic recovery, we doubt that the trade deficit will narrow much this year," he added.
The current account deficit for the fiscal year 2013-14 ending in March was 71.1 billion pounds, equivalent to 4.4 percent of the country's GDP. This was slightly lower than the highest current account deficit of 4.6 percent of GDP recorded in 1989, data showed by ONS at the end of March.
Martin Beck, senior economic adviser to the EY ITEM Club, said in a note: "Looking forward, we doubt that the export picture will brighten significantly, at least in the near-term."
"The recovery in the eurozone economy, Britain's largest single export market, is only running at a modest pace. The continued appreciation of the sterling, with the pound now at a near six-year high against the dollar, will damage British exporters' cost competitiveness."
Overall, Britain's expansion looks set to remain a largely domestic affair, said Beck. (1 pound = 1.71 U.S. dollars)