Imports jump and inflation looms as sterling crashes
The UK's trade deficit widened in August as the value of imports jumped in the face of the weaker pound.
In total, the UK bought £4.7bn more from abroad than it exported over the month, a near-doubling of the deficit from the £2.5bn recorded in July, figures out this morning from the Office for National Statistics (ONS) showed.
The value of exports rose by just £100m while imports surged by £2.6bn as the weak sterling meant UK firms and customers had to shell out more to get their hands on foreign goods.
The cost of imported goods rose by 6.5 per cent over the year, the ONS said, in a sign of inflationary pressures which are building in the UK economy.
"The general consensus among economic commentators is that the recent depreciation should boost export and manufacturing competitiveness," the ONS said.
However, today's figures show the reality may not be quite so simple, especially if instead of cutting back on imports, consumers and firms just swallow the higher prices.
The ONS added: "In general, a close long-run relationship between export and import prices is to be expected, as other factors such as raw material and labour prices are also significant drivers.
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"Many domestic firms may also agree to export or import goods at a fixed price in the importer's currency, to maintain client relationships and consistency of orders. If a UK firm agrees to do this, the price of the trade on a sterling basis would rise as the currency depreciates."
Allie Renison, head of trade policy at the Institute of Directors said the "massive rise in imports … is worrying." So far firms have been reluctant to raise their own prices in response to more expensive imports, but Renison said: "The spike in levels and prices of imports could soon be passed onto consumers."