UK trade misses target again. It’s time to look at the targets.

December 10, 2015

Another month, another round of disappointing British trade data.

Given it happens with such regularity, economists might be forgiven for viewing Thursday’s news of a widening goods trade deficit as a routine addition to Britain’s murky trade outlook.

In fact, there is a remarkable pattern at work here, one that perhaps suggest economists are underplaying Britain’s reliance on domestic demand, or the impact of sterling’s strength.

The goods trade balance hasn’t merely tended to undershoot the consensus of economists polled by Reuters. It has come in worse than all forecasts in 14 out of the last 24 months – in other words, most of the time.

REUTERS POLLS

To be clear, this doesn’t mean trade data itself has been consistently awful all of the time – just that it repeatedly disappoints relative to expectations. Trade has contributed on-and-off to the economic recovery over the last couple of years, but exerted a record 1.5 percentage point drag on growth in the third quarter.

But it is striking that the trade deficit is consistently underestimated by absolutely everybody. If that kind of thinking extends to economists in the Bank of England or Treasury, then it might have implications for policymaking too.

Looking at the changes to data points from the BoE’s export growth forecasts in its last seven quarterly Inflation Reports, it’s clear which way the bias lies. There have been 12 downgrades, five unchanged forecasts and four upgrades.

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