Hurricane Katrina yesterday blew a larger hole in the UK trade gap which widened to a record £5.3 billion in August.
The sharp deterioration in the trade deficit reflected payouts of £1.4 billion that specialist insurer Lloyd's of London is expected to make for storm damage in the United States.
The news came as a surprise to the City which had expected the trade gap to stabilise around the £3.9 billion mark of July. The impact of the estimated insurance payouts was visible on the trade balance in services, which was only £300 million in the black in August, compared with a surplus of £1.6 billion in the previous month.
Unlike most insurers, which set aside cash to pay for unforeseen catastrophes like Katrina, Lloyd's of London has no such reserves and this is reflected in the trade figures. The Office for National Statistics said: "The effect of these large claims is to reduce significantly UK exports of insurance services in August, when Hurricane Katrina occurred."
The devastating storm took place during a month when the UK also saw its oil surplus dissolve as it shipped in more supplies of crude than it sold overseas.
The ONS data shows that the balance of trade in oil was £413 million in the red during August compared with a surplus of £40 million in July.
HSBC economist John Butler said the oil deficit was the worst on record and was attributed to maintenance work on North Sea rigs when the weather was at its most benign.
This helped to explain why the gap in the goods trade widened to £5.6 billion in August from £5.5 billion in the previous month.
The ONS data indicated that exports of products other than crude oil were recovering and were 5.9 per cent higher than in July.