-Rob Wood, chief UK economist at Berenberg
The British trade deficit ballooned to its biggest level since 2010 last year, as exporters were hit hard by the ongoing weakness in the Euro zone, the UK's main trading partner. According to the Office for National Statistics, the overall trade gap rose to 34.8 billion pounds in 2014, reflecting the 14,6 billion pound drop in exports over the year as well as the 7.3 billion pound decline in imports. In December alone, the shortfall rose more than expected, up from 1.8 billion pounds to 2.9 billion pounds. Despite declining oil prices, the value of oil imports rose largely due to significantly bigger volumes imported to the UK. Despite the unexpected increase of deficit in the total trade in December, the overall fourth quarter deficit narrowed the most since the end of 2011, as the trade in goods deficit contracted by 2.2 billion pounds, partly reflecting the smaller value of fuel imports. It is expected that the fourth-quarter trade data is likely to have a less negative impact on GDP compared to the third quarter results, when net trade deducted 0.2 percentage points of the total economic output. Exports climbed 0.1% in December while imports soared by 2.7%, pushed up by a nearly 40% jump in the volume of oil imports on the month, reversing a trend of declining oil imports in previous months. Exports to countries outside EU in December fell, but these drops were largely compensated by a rise in exports to the US, Saudi Arabia and Japan, while imports from non-EU countries soared particularly from the US and Norway.
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