BANKS and businesses unanimously predicted yesterday that the British economy would be unable to sustain its strong export performance, which narrowed the global trade deficit to £670 million in March.
The deficit was £90 million lower than in February, thanks to a better than expected performance by exporters and a fall in imports. Trade in goods with the European Union was in balance.
However, Mr Ciaran Barr, a London based economist with Deutsche Morgan Grenfell, the investment bank, was one of many analysts who were sceptical over whether exports could continue to do so well.
"I just don't believe this buoyancy of exports is going to hold up. It would be a miracle if it did, to be quite frank," he said. DMG economists had predicted a trade deficit of £950 million sterling in March, in line with most City calculations.
The figures indicated that British exporters have not yet suffered from the strength of sterling, which has risen by about 18 per cent against the currencies of Britain's main trading partners since August last year. Sterling has been particularly buoyant against the DMark and the French franc.
A stronger pound makes British goods sold overseas more expensive and makes imports cheaper. But British exports to EU countries rose 1 per cent, while imports from these countries fell 2.5 per cent in March.
The data, released yesterday, contradicted both the expected impact of recent currency movements and the feedback from British industry, which has complained vociferously about increased competition in its export markets.
The Confederation of British Industry, this month, reported that export orders among its members were at a three year low. Manufacturing output figures have also seen a downturn, with industry blaming weaker exports.
At the same time the recent results season witnessed a stream of complaints about lower profits caused by the strength of sterling.
Mr Sudhir JunanTar, economic analyst at the CBI, said the effects of an appreciation in sterling take time to feed through. While exporters' prices are immediately pushed up by a higher currency, companies try to maintain their market share by cutting prices in the hope that sterling's rally will not last.
Equally, foreign customers will not instantly cut their orders in response to a rising currency Demand will fall only if prices rise.
"It could take up to one year depending on the company," Mr Junankar said.
If the good news on the trade deficit continues it will relieve pressure on Mr Gordon Brown, the chancellor, to use tax increases to calm the domestic economy rather than tempt the Bank of England to raise interest rates which would push sterling even higher.
