Mohammad Asad                                                                                                                      

    001109-018

Extract Number 3

UK's trade gap narrows as China's surplus hits record

By SEAN O'GRADY | Wednesday, 11 July 2007

The UK's deficit on trade unexpectedly narrowed in May to £3.5bn, from £4.2bn in April, the third consecutive decline and the narrowest in over a year-and-a-half.

Sir John Gieve, the deputy governor of the Bank of England, remarked yesterday that investment and export growth had been "on the whole getting a very strong reading" and that a rebalancing of growth away from consumption "would be no bad thing".

But fellow Bank of England Monetary Policy Committee member Andrew Sentance said that "strong global demand is putting upward pressure on a range of energy and commodity prices... To bring inflation back to target over the medium term, we either need to see goods price inflation fall back... or an offsetting fall in services inflation".

Economists welcomed the trade news, but also counseled caution. Karen Ward, of HSBC, said: "Basic materials and fuels are driving exports, up 5.6 per cent and 2.3 per cent respectively in the latest three months.

Exports of finished manufactures are down 3.8 per cent. It is China, Hong Kong and South Korea who are demanding UK exports. The value of exports to the Euro-zone big-four is declining."

Join now!

Despite the insatiable Chinese demand for capital goods (which has also had beneficial impact on German exports and growth), China's trade surplus reached a record of $26.9bn (£13.5bn) in June, twice as high as a year earlier, as Chinese manufacturers rushed to fill orders before reductions in official export incentives came into force on 1 July.

Exports went up by 27.1 per cent (on June 2006) and imports climbed 14.2 per cent. Last year's $177.5bn trade gap was a record. Much of the balance derives from America.

The persistent undervaluation of the Chinese currency worries about intellectual piracy ...

This is a preview of the whole essay