Trade gap adds to industry woes

BRITAIN'S trade gap has ballooned to its widest for six months, official figures show today, capping a disastrous week for manufacturing industry. In a sign that the stalling global recovery is hitting British exports hard, the trade deficit with the rest of the world mushroomed to £3bn in June from £1.8bn in May.

The latest figure greatly exceeded the City's expectations and was the worst since last December. The deficit with other European Union countries widened to £855m from £130m the previous month. The deficit with non-EU countries grew to £2.2bn from £1.7bn previously. A breakdown of the data showed world exports slumped from £17.1bn in May to £14.9bn in June.

National Statistics, which compiled the data, said half the fall reflected lower exports to the US and Ireland. It added that the figures may have been distorted by June's World Cup and the Jubilee bank holiday which led to an extended shutdown at many firms.

The figures came just days after National Statistics revealed that factory output slumped by 5.3% in June - the biggest one-month fall since the worst of the Winter of Discontent in January 1979. They will add to growing speculation that second-quarter gross domestic product growth, provisionally estimated at 0.9%, will be downgraded sharply.

The respected National Institute of Economic and Social Research said this week the new figure, which will be unveiled in two weeks' time, could be as low as 0.5%. Economist Brian Hilliard at Societe Generale said: 'It is dangerous to read too much into one month's data but it does suggest that the trade deficit, rather than peaking, is resuming a widening trend. This is one further piece of information raising doubts about the growth outlook and so will add to the chances that a cut in interest rates will be necessary.'

Doug Godden, head of economic policy at the CBI, said although care should be taken in interpreting June's data, the underlying picture confirmed manufacturers' difficulties. 'It fits in with other evidence suggesting that the world recovery is not taking hold as quickly as had been hoped earlier in the year,' he said.

Financial markets were hit by the news. The FTSE 100 index of leading shares after trailling during the day rose 44.4 points to 4284.9. The pound dipped to a low of $1.5269, or 63.05p against the euro.

US productivity plunges

THE productivity of the average American worker plunged during the second quarter of the year, undermining the notion of the US 'productivity miracle' and fuelling fears of a double-dip recession. Productivity rose at an annual 1.1%, the weakest growth rate for a year and down sharply from the previous quarter's 8.65%.

Economists said the news increased the chances of the Federal Reserve, led by Alan Greenspan, cutting US interest rates next week. Unit labour costs jumped by 2.4% during the quarter, the biggest increase for more than a year.