Fall in oil imports shrinks UK trade deficit, BCC Global Economic Review says

A huge fall in the UK trade deficit on goods and services saw it plunge to £0.6bn in January 2015 from £2.1bn the previous month, according to the British Chambers of Commerce  (BCC) Global Monthly Economic Review.

The BCC says that the large reduction supports its short-term optimism about the UK economy but adds that the scale in the deficit’s decline is exaggerated by volatile factors, particularly a huge fall in oil imports as a result of plummeting oil prices.

It adds: “The strengthening of the pound makes it difficult to  see the trade deficit continuing to narrow in the coming months.”

The review adds that although oil prices have recently shown signs of stabilising, they fell more than 60% between January 2014 and January 2015. It says: “Falling oil prices benefit the UK economy, provided that savings are passed on to households and businesses through lower energy bills, fuel costs and airfares.”

The pound has remained close to a seven-year high against the euro and its relative strength will affect exporting manufacturers whose goods will be more expensive for Eurozone customers, the UK’s biggest trading partner - though cheaper in the US.

Meanwhile, the European Central Bank (ECB) has raised its Eurozone growth forecast to 1.5% up from 1% and has confirmed quantitative easing plans, which will inject at least £834bn into the Eurozone economy by September 2016.

Australia’s economy grew 0.5% in Q4 2014 compared to the previous quarter when growth was 0.3%. Falling business investment as a decade long mining boom faded away was the main cause of Australia’s slowing economy.

In China, the government set a 7% growth target for 2015, lower than the 7.5% set for 2014 which was missed after the country’s economy grew at its slowest page for 24 years.

In Japan, lower oil prices have driven the inflation rate to a 16-month low.  After a brief recession, the country returned to growth of 2.2% in Q4 2014 helped by a huge surge in exports, especially machinery and electronic devices.

Steep falls in petrol prices turned US inflation negative in January when The Consumer Price Index (CPI) fell 0.7% in a month. Consumer prices have been below the Federal Reserve’s goal of 2% annual inflation for the 23rd consecutive month.

In contrast, Brazil’s inflation stood at a 12-year high of 7.4% in February, above the government’s 6.5% target, even though the country’s central bank lifted interest rates to a six-year high of 12.75% in January.

The BCC review says: “Latin America’s largest economy faces the risk of recession in the coming months as the government tightens fiscal policy to turn around the highest budget deficit on record.”

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Chamber International - BCC Global Economic Review