Shock dive in UK exports hits hopes of rally

Hopes of a strong export-led recovery faded today after a shock fall in sales of British goods abroad.

Official figures showed exports fell more than imports in April as the volcanic ash cloud from Iceland grounded flights in and out of the UK.

The greater decline in exports raised fears that overseas trade will not make up for a fall in demand at home as taxes rise and spending is cut. It makes the harsh medicine proposed by Chancellor George Osborne to restore Britain's finances to health look ever more risky.

Vicky Redwood, senior UK economist at Capital Economics, said: "Exports are in no position to offset the effects of the fiscal squeeze that is now almost upon us."

Britain's trade gap with the rest of the world, the difference between imports and exports, widened from £7.26 billion in March to £7.28 billion in April.

City analysts had expected it to narrow to £7 billion as the weak pound drove demand for British goods overseas but exports fell 0.6% compared with a 0.4% fall in imports.

Osborne is planning a series of tax rises and spending cuts to bring Britain's record borrowing of £156 billion, or around 11% of gross domestic product, back under control.

He hopes to copy the experience of mid-1990s Canada, which managed to turn a deficit of 9.1% of GDP into a small surplus in five years.

Canada benefited from strong growth in its main trading partner, the United States. The UK may not be so lucky with its biggest trade partner, the eurozone, reeling from a sovereign debt crisis.

David Kern, chief economist at the British Chambers of Commerce, said: "The much-needed rebalancing of the economy towards exports needs to accelerate given the obstacles facing the UK economy in the years ahead.

"While the competitive sterling exchange rate is a helpful factor, weaknesses in the eurozone will pose serious challenges for Britain's exporters."