Latest trade data reveals shock fall in export volumes

Export volumes fell by 1.5 per cent in March according to the latest trade data (pdf) released today by the Office for National Statistics. What is worse, when oil and erratic items (such as ships, aircraft, precious stones and silver) are excluded, the fall in volumes was 3.4%. On the face of it, this is a severe blow to hopes of an export-led recovery in the UK.

It also appears to be bad news for those looking for a rebalancing of the UK economy away from the financial sector and in favour of manufacturing, as there were hefty falls in exports of consumer goods (excluding cars), intermediate goods and capital goods.

However, these data should be an object lesson in not reading too much into one month’s data. Even after what are officially described as ‘erratic items’ are excluded, the trade volume numbers are very volatile. The fall in underlying export volumes (i.e. after excluding oil and erratic items) follows two months in which volumes increased by 7.0% (January) and 2.3% (February). As a result, export volumes in the first quarter were 7.6% higher than in the final quarter of 2010 and 18.9% higher than a year earlier.

And export volumes are running well ahead of import volumes, which were up 2.1% on the quarter and 8.5% over the last year. Most economic forecasters, including the Office for Budget Responsibility, are banking on a significant positive contribution to growth from net exports (exports less imports) in 2011 to offset, in part, expected sluggish growth in consumer spending.

For now, and despite the latest month’s export numbers, this aspect of their forecasts is still on track.