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UK trade gap widens to £3.8 billion

The UK trade gap (including goods and services) widened to £3.8 billion in May, which is a two year high. This is a bitter blow for the UK government which had hoped that the exports of goods, benefiting significantly from a weaker sterling, would in some way support the UK economy in the short to medium term. However, there has been a significant weakness in exports over the last couple of months despite the fact that sterling is still relatively low compared to its level against the likes of the dollar and the euro just two years ago.

The problem now is that if exports do not pick up in the short to medium term and, as expected, the UK economy does weaken in the latter part of 2010 and the first half of 2011 the situation could get very much worse before it improves. This would place more pressure on sterling and reduce activity within the UK economy which could have a massive impact upon the number of companies going under and struggling to survive over the next few years.

As ever, it is proving more and more difficult to forecast the direction of the UK economy with any great confidence which is causing concern amongst investors who have already begun to withdraw to the sidelines.

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