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UK trade deficit widens unexpectedly

It has been revealed that the UK trade deficit in December widened from £6.8 billion in November to £7.28 billion despite analyst forecasts of a £6.63 billion deficit. This is a major blow to the recovery process within the UK and was purely and simply down to the fact that imports rose much quicker than exports despite the low level at which sterling is trading in the foreign exchange markets.

Despite the fact that sterling had appeared to benefit from the problems in the Eurozone, any gains of late were wiped out today with sterling falling to a three-week low against the euro and a near record low against the dollar. When you also appreciate the fact that retail sales in the UK for January were the worst on record the situation in the UK does not look poised for a sustained economic recovery.

It is believed that the import of cars and aircraft were the main contributors to the widening trade deficit although it will be interesting to see how the situation pans out for January. Sterling may well come under renewed pressure in the short to medium term unless the economic situation improves dramatically although with speculation that the European Union is currently drawing up a rescue plan for Greece, we could see the euro strengthen against sterling.

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