Trade Gap could hit £100 billion by 2010, says IoD

30 January 2006

The UK's escalating trade deficit is the economy's 'silent scream', business leaders said today. In a new economic briefing paper, the Institute of Directors (IoD) said that ignoring the deficit is no longer an option.

Having risen from £12 billion in 1997 to around £64 billion in 2005 - 1.5% to 5.5% as a proportion of GDP - the trade deficit will become one of the key economic issues over the coming years.

If the deterioration continues at just half the current rate, the trade gap will hit £100 billion by 2010, the IoD predicted. Even if it stabilises as a proportion of GDP it will still exceed £80 billion by 2010.

Graeme Leach, Chief Economist at the IoD said:

"In the absence of a recession or sharp economic slowdown we don't expect to see any decline in the trade deficit, which deteriorated still further in 2005 despite a sharp fallback in UK GDP and consumption growth. On top of this, the decline in the oil balance and rising deficits with countries such as China, suggest the situation is likely to get worse not better. The overall current account balance remains under control but this too is likely to deteriorate given that the trend balance in services is not improving."

Decline in the oil balance and the rising deficit with China alone, have added 1% of GDP to the trade deficit in recent years, the IoD pointed out.