LONDON (Reuters) - Britain’s trade deficit plunged in December to its lowest since July 2012, driven by erratic goods such as aircraft, but smaller-than-expected manufacturing growth underscored the challenge of rebalancing the economy.
Last year’s sharp rebound in the British economy after several years in or near recession was mostly led by consumer spending, and the Bank of England wants to see the recovery broaden out to include more exports and business investment.
Economists said the surprisingly small gap between exports and imports in December might give fourth-quarter growth a more balanced feel.
But disappointing manufacturing data for December meant the sector - which has yet to recover fully from the impact of the financial crisis - was unlikely to help drive the pace of recovery further.
British government bond prices rose after the data.
The Office for National Statistics said Britain’s goods trade deficit was 7.72 billion pounds ($12.6 billion) in December. That was more than 2 billion pounds narrower than a month before and much less than the 9.3 billion pounds forecast by economists in Reuters poll.
A fall of just over 2.5 billion pounds in the overall trade deficit, including services, to 1.03 billion pounds was the biggest monthly decline since records began in 1998.
An ONS official said a 2.7 percent jump in the volume of goods exports in December was helped by oil, chemicals and aircraft while a 5.2 percent fall in imports was pushed down by lower imports of erratic items such as aircraft and ships.
Economists said the hefty impact of one-off items in December’s trade numbers meant the shortfall was likely to widen again next month.
“Nonetheless, it looks like net trade will have added to growth in the final three months of 2013, following the third quarter’s hefty drag,” said Martin Beck of Capital Economics.
Separate data from the ONS on Friday highlighted the difficulty of reviving key sectors of the economy.
Manufacturing picked up in December, led by production of pharmaceuticals, refined petroleum products, food, beverages & tobacco, but not by as much as economists had expected.
It edged up 0.3 percent after falling 0.1 percent in November. A Reuters poll had forecast a 0.6 percent pick up.
Output for the overall industrial sector - which accounts for about 15 percent of the British economy - was up 0.4 percent in December from November, also missing expectations for a 0.6 percent rise.
“The current scenario for UK factory activity remains solid but the pace of growth is unlikely to accelerate further,” said Annalisa Piazza, an economist at Newedge Strategy.
Industrial output grew 0.5 percent quarter-on-quarter in the last three months of the year, below a preliminary estimate of 0.7 percent used in fourth-quarter gross domestic product data published last month.
An ONS official said the difference on its own was not enough to change the growth figure of 0.7 percent for the October-December period, which contributed to the fastest annual rise in GDP since the financial crisis.
Economists are worried that a recovery led by household spending will not be sustainable, especially at a time when wage growth is not keeping up with inflation even though the labour market is rebounding much faster than expected.
The BoE had tied future interest rates changes to the jobless rate, but a rapid fall in unemployment has caught the central bank off-guard and it is expected to offer fresh forward guidance alongside its quarterly inflation report next week.
Editing by Catherine Evans