The latest data released from the Office for National Statistics the UK’s deficit on trade in goods and services rose to £3.5 billion in September, compared with the deficit of £2.2 billion in August.

The trade deficit reached its highest level since the beginning of the year compared with expectations of a further narrowing of the negative balance. However on a quarter on quarter basis, the deficit shrank slightly to £8.4 billion in Q3 from £8.6 billion in Q2.

Looking behind the headline figure, the UK’s deficit on trade in goods widened by £1.1 billion to £7.2 billion in September as total imports rose by £1.9 billion (7.5 per cent) compared with growth in exported goods of £0.7 billion (3.9 per cent). The UK imported an additional £0.4 billion worth of cars in September from August. This represents an increase of 29.2 per cent over the month as UK consumers took advantage of the car scrappage scheme. Imports of oil rose by £0.2 billion (8.4 per cent) in September as the UK continental shelf summer maintenance weather window extended into summer, reducing indigenous production.

There was a similar increase in the value of imports from different trading areas in September. Imports from the EU increased by 7.8 per cent and increased by 7.1 per cent from countries outside the EU. Exports to Germany and France rose by 6.9 per cent and 10.7 per cent respectively between Q2 and Q3. On Friday we are expected to learn that output in the EU27 grew by 0.5 per cent in Q3 led by an increase in output of 0.8 per cent for Germany – Europe’s largest economy.

Today’s news that the trade deficit widened considerably in September is likely to have a negative impact on the second estimate for Q3 economic growth in the UK, which is released towards the end of the month. Over the longer term export growth is expected to outpace import growth as exporters are helped by sterling depreciation. There is a downside risk to export growth from weak external demand, but weaker import growth will reduce the trade deficit in any case.