Britain’s widening trade gap

The November 2008 trade statistics have just been released and they show that the UK had the largest nominal trade deficit on record at £8.3 billion (up from 7.6 billion in October). This represents nearly 7 per cent of GDP, the highest since 1974.

Trade gap widens despite pound’s slump Independent (14/1/09)
UK trade deficit hits a record as weak pound fails to help Telegraph (13/1/09)
Britain’s trade deficit widens to new record Guardian (13/1/09)
UK Trade, November 2008 National Statistics (13/1/09)

Questions

  1. Why has the UK’s trade gap widened?
  2. How can the concepts of income and price elasticity of demand be used in analysing the causes of the widening deficit?
  3. Explain how these elasticity values are likely to differ in the short and long run.
  4. Explain the factors that will determine whether the trade gap will widen or narrow over the coming months.