MANUFACTURING UP IN Q2 BUT TRADE GAP WIDENS IN JUNE

The ONS have released figures (HERE) for industrial output in Q2 and this shows a healthy increase of 2.1% but masks a declining figure over the quarter because April's growth rate alone was actually 2.3% so May and June must be lower and some recent surveys indicate growth has slowed significantly.

More worrying is the trade balance or current account balance. In June the figure for goods widened from £11.5 bn in May to £12.4 bn in June.  Taking services into account reduces the deficit to £5.1 bn but this is up from £4.2 in May.  The pound slumped again when these numbers were announced and currently (at 13:53 GMT) is trading at $1.29750.

If we are to succeed outside the EU we need to get our imports and exports closer to balance - preferably by increasing exports - but these figures do not provide any confidence we can do this anytime soon.  On the BBC, HSBC today predicts the pound could fall to $1.20 by the end of the year and $1.10 by the end of 2017 when it also expects the pound to hit parity against the euro. "The UK has a very large current account deficit. This structural weakness will come under immense pressure because of the forthcoming major political and economic changes. We find that sterling will need to fall further, and remain weak for a long time, in order to create significant improvements to the UK's structural position."

Tom Goodenough in a Spectator Blog post (HERE) thinks the trade gap is a good bargaining chip to persuade the EU to give us a good deal but HSBC do not seem so sure.