City experts’ fears over high trade deficit

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Britain has failed to take advantage of the declining value of the pound since the financial crash to boost exports and address the country’s trade deficit, according to Sheffield academics.

Experts at the Sheffield Political Economy Research Institute say it was a different story after similar crises in 1976 and 1992.

Then there was a significant improvement in the UK’s trade balance for several years as the resulting cheaper exports attracted more overseas customers and the UK imported fewer goods from abroad.

But the latest evidence from the Sheffield team on the value of sterling and the UK’s trade balance shows that although the pound fell in value by 15 per cent against the Euro throughout 2008 - and 24 per cent against the US Dollar - the UK’s trade deficit was largely unchanged.

In fact the researchers say it remains stubbornly high – even though sterling remains 16 per cent down against the Euro compared to the end of 2007, and 21 per cent down against the US dollar.

Pumping more money into the system has also not led to the expected economic boost.

Dr Craig Berry said there was danger in the UK economy’s reliance on exporting services to the Eurozone, and called for stronger efforts to both rebalance the economy back towards manufacturing, and to diversify the UK’s export base.

Dr Berry said: “Although the financial crisis and its aftermath represent fairly unique economic circumstances, sterling depreciation in both 1976 and 1992 occurred amid an economic crisis, yet in both periods the trade balance improved significantly.

“The persistence of a trade deficit calls into question policies which have the redistributed wealth to the most affluent sections of society.”