Britain’s efforts to expand trade in goods beyond the European Union’s border took a knock in July after official figures showed the UK’s deficit with the rest of the world widened following a drop in exports.

The deficit in the trade in goods with non-EU countries widened by £2.4bn while exports to the EU grew to cut the trade gap by £1.3bn.

The figures were released as a new report from thinktank the National Institute of Economic and Social Research (NIESR) said economic growth shows signs of accelerating in the UK, albeit still at a slower pace than in recent years.

Analysts had expected the fall in the pound to give a significant boost to exports with the EU and beyond, but the trend since last year’s Brexit vote has shown only a gentle increase in exports and a continuing appetite for imports, despite the higher cost, leaving only a marginal improvement in the net trade position.



Overall, UK exports of goods and services edged down 0.2% month on month in July and were up just 0.6% from one quarter to the next. At the same time the eurozone is showing signs of outpacing the UK as the fall in sterling fails to lift exports as much as expected.

The Office for National Statistics added to the gloomy economic news with data showing that the manufacturing sector remained “subdued” in July and the construction industry suffered a large drop in new orders in the three months to the end of June, especially in the housebuilding sector.



Manufacturers improved their output, though this only meant reducing the loss of production of 0.6% in June to 0.1% in July. The ONS said a flurry of new car models helped the motor industry recover ground lost earlier in the year.

The news came as the second of the UK’s new generation of aircraft carriers, HMS Prince of Wales, was officially named in a ceremony at Rosyth Naval Dockyard on Friday. Liam Fox, the trade secretary, said 90% of the suppliers for the construction of the £3bn boat and its sister ship, HMS Queen Elizabeth, were based in the UK.

Set against the positive picture for manufacturing, there was worse news for the construction sector. Output dipped by 1.2% in July, the fourth consecutive month of contraction, while new orders fell to the lowest level since 2014 following an 8% slump.

In a damaging development for the government, housing orders were down almost 10% on a year ago with public housing the worst affected.

Howard Archer, the chief economic adviser to the EY Item Club forecasting group, described the trade, construction and manufacturing data as a “mixed bag” that showed the upbeat signals from some manufacturing industry surveys was starting to register in official data, though the trade and construction data “point to a UK economy still struggling to break out of sluggish growth”.



ONS senior statistician Kate Davies said: “Manufacturing remains relatively subdued since the start of the year, though July showed the first significant monthly growth of 2017, with car production increasing partly thanks to new models rolling off the production lines. The usual period of summer maintenance of North Sea oil platforms also failed to materialise for a second month running.



Lee Hopley, the chief economist at EEF, the manufacturers’ trade body, said there was some good news from the export figures, which revealed “robust numbers on manufactured exports”.

She said: “Double-digit year-on-year growth is carrying through to the start of the second half of the year. But the need to import materials and components at the same rate means the overall deficit isn’t budging.”

Industrial production appears to be helping to bolster GDP growth after the worst start to the year since 2012. The economy is expected to have grown by 0.4% in the three months to the end of August, according to NIESR. While that’s still below the long run trend of about 0.6%, it’s an improvement on the three months to the end of July, when the economy grew by just 0.2%.



The mixed signals on the economy add to the conundrum facing interest rate setters at the Bank of England as they prepare to meet on Thursday. Rising inflation, hitting 2.6% in July and expected to head higher over the coming months, would usually be enough for Threadneedle Street to put up its base interest rate.

But weak growth and the stuttering Brexit talks will probably convince them to stay put, according to economists. Philip Shaw, of City bank Investec, said the monetary policy committee will probably keep rates steady until 2019, while a rate hike this year is “very unlikely”.