October trade gap unexpectedly widens

A freight ship leaves Southampton docks, January 22, 2009.

LONDON (Reuters) - Britian's global goods trade deficit unexpectedly widened in October after imports rose to the highest on record, official data showed on Thursday, raising questions about trade's contribution to future growth.

Economists had been predicting that the trade gap would continue to narrow as domestic manufacturers finally started to benefit from falls in the value of sterling, but in fact a rebound in oil exports were the only thing that prevented the headline number being worse.

Imports were driven by demand for chemicals from the European Union, and stripping out the effect of trade in oil and erratic goods like aircraft, the underlying global goods trade deficit was the worst since records began in 1992.

"At face value this is not a good reading, and probably a drag on growth. We were hoping net exports would be one of the main drivers of the recovery," said Alan Clarke, UK economist at BNP Paribas.

The Office for National Statistics said that Britain's total trade gap in goods widened to 8.529 billion pounds in October from an upwardly revised deficit of 8.392 billion pounds in September.

Imports were their highest on record at 31.601 billion pounds, up from 30.551 billion in September, while exports rose to 23.072 billion pounds from 22.159 billion, their highest since May 2006.

However this improvement in exports was driven by a sharp reversal in September's 954 million pound deficit in the trade in oil to a surplus of 259 million pounds in October. The ONS said this was due in part to an end to summer maintenance work on the North Sea oil fields.

Markets did not move on the data, which comes a few hours before the Bank of England announces its December monetary policy decision. The Bank is betting that a recovery in exports will help Britain weather a slowdown in domestic demand next year when hefty government spending cuts start to bite.

But markets before the data had viewed it as almost a foregone conclusion that the Bank will not change its policy stance this month, regardless of the trade data.

BNP Paribas's Clarke added that the figures should not be seen in a purely gloomy light. "It is worth cautioning that a lot of the deterioration in recent months is down to strong imports rather than weak exports. That could be down to manufacturers sucking in imports."

The Confederation of British Industry said on Wednesday that factories were reporting the strongest export orders in 15 years.

The overall trade deficit -- including the more volatile services component, where the country typically runs a surplus -- also widened in October to 3.946 billion pounds from a three-month low of 3.790 billion pounds in September.

"Really the figures are incompatible with the rebalancing of the economy and an export-led recovery," said Investec economist Philip Shaw. "Admittedly this is only one month's figures, but it's not a particularly encouraging set."

(Reporting by David Milliken and Kate Holton; editing by Patrick Graham)