LONDON - The trade deficit with the rest of the world hit a record high in August as the oil balance swung into the red and because of huge insurance payouts resulting from Hurricane Katrina.
The Office for National Statistics said on Tuesday the goods and services trade deficit widened
to a record 5.3 billion pounds from 3.9 billion in July.
The main driver in the worsening was the services surplus narrowing sharply, as it was estimated the Lloyds of London insurance syndicate would have to pay out around 1.4 billion pounds in claims arising from Katrina which devastated parts of the U.S.
The pound fell immediately after the figures but economists said that the overall picture was being distorted by one-off factors and that the trend in the deficit was largely unchanged.
"The figures are disappointing but there are a few mitigating factors," said Philip Shaw, chief economist at Investec. "Once you strip out those factors, (it) doesn't look that different to expectations."
The ONS said that for accounts purposes any insurance losses were treated as being made in the same month the hurricane hit.
But it noted that similarly large insurance payouts made after the September 11 attacks on the United States had no effect on GDP at the time as they were treated as a price measure that did not affect output.
The goods deficit also hit a record 5.6 billion pounds, slightly more than the 5.5 billion recorded in July but much more than expected by analysts as the oil imports outstripped exports.
The oil balance recorded a deficit of 413 million pounds, the first shortfall since November last year, as extended maintenance work and a fire in one oil field in the North Sea hit UK production.
- REUTERS
