Weaker pound should support exports and provide a boost to Q2 growth - EY ITEM Club comments

08 July 2016

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  • Trade deficit widens in May…
  • …but picture for Q2 is looking positive
  • Weaker pound should boost exports, but unlikely to offset headwinds

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“May saw the trade deficit widen as total exports of goods and services saw the biggest fall for almost a year. Despite the wider deficit in May, the picture for Q2 is looking favourable for hopes that net exports might provide a boost to output.

“The weakening in sterling seen since the end of last year may already be manifesting itself. The further decline since the EU referendum on 23 June should provide a further fillip for exporters and firms competing with imports. At the same time, however, the fall in the pound will push up import prices and inflation, squeezing household real incomes.

“A brighter outlook for exports offers one silver lining in the Brexit cloud. However, combined with the effects of uncertainty on consumption and investment, it seems unlikely that net trade will be able to save the economy from a slowdown.”