News that the balance of trade slipped further into the red during March (the latest figures available) was something of a shock for economists who had expected recent improvements to accelerate. The deficit on goods fell from £6.3bn in February to £4.5bn; the problem was rapid growth in imports with a fall in exports. Even allowing for the service sector, the overall deficit increased from £2.2bn to £3.7bn. According to the Bank of England’s Agents’ summary of business conditions for May, there has been a recovery in export volumes, but poor demand from our trading partners (especially with a weakening euro) is constraining recovery in terms of value.
On the other hand, manufacturing output has continued to rise and credit conditions, while still tight, appear to be relaxing – although this is largely benefiting larger businesses. Employment intentions are also showing early signs of recovery with some companies in the business services sector reinstating trainee and graduate recruitment schemes to cope with expected demand. However, while employment in the private sector is at least stable, that in the public sector is set for headcount reductions.
There has also been a slight recovery in pay rates, but higher employment costs largely relate to a return to full time working, where there had previously been a reduction in hours.
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