British Trade Gap Shrinks but It’s Still the Third Worst

Britain announced that its balance-of-payments deficit for November improved to $2.9 billion (1.61 billion pounds), compared to October’s revised record gap of $4.55 billion (2.53 billion pounds).

But the November figure for the current account balance, the widest measure of trade, was still the third worst on record.

The merchandise trade gap for November was $3.6 billion (2 billion pounds), compared to $5.2 billion (2.9 billion pounds) in October. The current account deficit from January to November was estimated at $24 billion (13.38 billion pounds).

The figures released Friday were in line with economists’ predictions and the pound firmed slightly on foreign exchange markets after they were announced by the Department of Trade and Industry.

“It’s a measure of the nervousness of the City (London’s financial district) that the third-worst figures on record can be greeted with such relief,” said Richard Jeffrey, director of economics at Security Pacific Hoare Govett.

Britain’s finance minister, Chancellor of the Exchequer Nigel Lawson, last month forecast that the current account deficit for the whole of 1988 would be $23.4 billion (13 billion pounds).

The government has said that Britain’s trade balance will remain in the red for months to come. It has raised interest rates sharply since June to try to dampen a consumer boom that has sucked in a high level of imports.

Friday’s figures were expected to ease pressure for another rise soon in interest rates. Base bank interest rates have nearly doubled to 13% from 7.5% in June.

Exports improved last month by 2.5% from October levels to $12.4 billion (6.9 billion pounds), while imports were down 8% to $16 billion (8.9 billion pounds).

The trade gap of $3.6 billion (2 billion pounds) was partly offset by an estimated $720-million (400-million pound) surplus in invisible items such as banking and insurance--a figure revised from the $900 million (500 million pounds) that the government used in previous months.

A slowing in the rate of growth in average earnings to 9% in October from 9.25% in September went some way toward reassuring financial markets, which worried that rising inflation could prompt a wage-price spiral in the economy.

But financial analysts say the underlying trends for exports and imports were still worrisome. Export growth was slower in the three months to November than in the three months to October, while imports increased.

Bryan Gould, the opposition Labor Party’s trade spokesman, accused the ruling Conservatives of taking unjustifiable risks with the economy. “These figures complete the worst six months in trading history. We have reached the point when merely avoiding another monthly record deficit is treated as good news,” he said.