Data released by the Office for National Statistics (ONS) showed that the UK trade deficit narrowed in April to £1.2 billion from £3.1 billion in March. Contributing to the headline figure is a £8.6 billion deficit in the trade of goods, partially offset by a £7.4 billion surplus on services. Looking at the longer term trend, comparing the three months to April with the three months to January reveals that the trade deficit has widened by £1.6 billion.

The most recent narrowing should not be cause for too much celebration given that the UK’s trade deficit remains substantial. One of the contributing factors is the country’s reliance on exporting to its low-growth European neighbours. In 2013 (the latest year for which detailed Balance of Payments data are available) 36% of British services exports were EU-bound along with 50% of exported goods. In 2003, 41% of services exports were to the EU, and the corresponding figure for goods was 59%. These figures suggest that although there has been a rebalancing away from European markets, more efforts are necessary to successfully target higher-growth regions. Given the subdued growth in global demand in general, this will likely prove a great feat.

Cebr expects growth in the Eurozone to persist in the second half of 2015 partially fuelled by the European Central Bank (ECB)’s injection of liquidity via its quantitative easing programme. While this should help stimulate demand for British products, substantial sources of downside risk remain. Firstly, should a ‘Grexit’ occur, growth across the continent may be hindered. Secondly, as the Bank of England is expected to tighten monetary policy faster than the European Central Bank the sterling may appreciate against the common currency, making British goods less affordable for European buyers.

The Business Confidence Monitor which Cebr compiles together with ICAEW shows that domestic sales rather than exports remain the largest driver of economic growth. Combining strong consumer spending with export and investment growth would set the country on a more sustainable recovery path.