By Jason Theodorou

The UK's trade deficit has widened more than predicted, as growth in exports slowed.

The trade in goods and services gap widened to £3.8 billion in May, the highest level seen in 22 months, according to the Office for National Statistics. The deficit on trade in goods rose to £8 billion, the highest level since January and an increase from £7.4 billion in April.

Exports rose by less than 0.2% to £21.5 billion, while imports rose by 2.4% to £29.5 billion. The figures show the impact of the Eurozone debt crisis.

Seperate figures indicated that in June, inflation at the factory fate had fallen to the lowest level in three months. The annual rate of producer output prices dropped to 5.1% from 5.5%. There was also a decline in the cost of raw materials.

Commenting on the trade figures David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“While these figures confirm that exports are growing, the pace of expansion is inadequate. The competitive sterling exchange rate remains a helpful factor, but weakness in the eurozone is a major obstacle, and it is worrying that imports continue to grow more strongly than exports.

“Although manufacturing exporters expressed confidence in the BCC’s latest economic survey, it is clear that the much-needed rebalancing of the economy towards exports is not happening fast enough. The process needs to accelerate given the risks facing the UK economy in the years ahead.

“Since exports must be put at the centre of any lasting UK economic recovery, it is important to nurture companies trading abroad. Businesses need improved access to short-term trade finance and they may have to look to other global markets outside Europe for an export-led boost.”

Philip Shaw, chief economist at Investec, said: 'The trade figures are disappointing again... the long awaited surge in exports has yet to happen. Export values have stalled month-on-month. Weakness of eurozone domestic demand is probably the main factor here'.

Iain MacDonald, Head of Trade Product at Barclays Corporate, said: 'Although the UK manufacturing sector has shown continued signs of improvement in recent months, the widening of the trade deficit in today’s figures underlines the fact that not enough has been done to translate this growth into export opportunity'.

'Actions to tackle the deficit along with continued instability throughout the Eurozone have contributed to the strengthening of Sterling, particularly against the Euro, which if sustained will put further pressure on the trade deficit'.

Mr. Macdonald said that UK exports should look to adopt robust forex protection programmes, and consider diversing their export activities to non traditional markets such as Asia and the Far East.

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