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Increase in trade deficit prompts fears of GDP dip

THE UK's trade deficit widened to £3.6 billion in October, having been at £2.5bn in September, in a further indication that the economy remains in difficulty.

Data from the Office for National Statistics showed a deficit of £9.5bn on goods in October was partly offset by an estimated services surplus of £5.9bn.

The widening of the deficit was due to a 1% monthly fall in exports and a 2.5% rise in imports.

Taking the three-month period to October, the goods deficit reached £28bn, which is the highest level since records began.

The research follows on from generally poor manufacturing, services and construction sector surveys earlier this week and a downward revision of UK economic growth over the forthcoming years by the Office for Budget Responsibility.

Economists said the trade data gives additional weight to expectations that the gross domestic product (GDP) may dip again in the fourth quarter of 2012.

Martin Beck from Capital Economics said: "October's trade data provided another indication that the economy has got off to a weak start to Q4.

"October's deterioration in the trade deficit was split fairly evenly between EU and non-EU countries.

"Exports to the US did particularly badly, falling by 15% on the month."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The October trade data show a renewed marked widening in the deficit, thereby stoking concern that net trade will be negative in the fourth quarter and increase the likelihood of a renewed dip in GDP.

"Net trade made a recently rare positive contribution to GDP in the third quarter following markedly negative contributions in both the second and first quarters.

"Certainly, it is hard to be optimistic that net trade can help the UK economy much in the near term, at least given the pressure on exports coming from ongoing very weak domestic demand in the Eurozone and generally soft global growth."

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