UK trade gap narrows sharply in January
Source: BI-ME with Reuters , Author: Posted by BI-ME staff
Posted: Wed March 9, 2011 6:07 pm

INTERNATIONAL. The global goods trade gap narrowed in January to its smallest in nearly a year with record exports of oil helping drive a recovery from its worst reading on record in December.

The improvement will provide some relief to policymakers who have pinned their hopes of economic recovery on exporting more at a time of weak domestic demand.

The goods trade deficit narrowed to £7.06 billion in January from £9.69 billion in December which was the worst reading since monthly records began in 1980. Economists had forecast a more modest fall to £8.5 billion.

December's deficit was revised higher, a move the statistics office attributed to a reassessment of seasonal factors and revised data from the tax authority and other agencies.

However, economists cautioned that monthly trade figures were notoriously volatile and December's severe winter weather may have amplified the move.

"Today's number is encouraging but there is clearly a lot of short term volatility in these figures" said Ross Walker, an economist at RBS.

"The underlying positive is still that trade is making only a relatively modest contribution to GDP growth."

A contraction in the economy in the fourth quarter -- fuelled by the cold weather -- was one reason why policymakers were reluctant to raise interest rates at the Bank of England's last meeting. A better first quarter is widely expected to trigger the rise by June.

December was the country's coldest in a century and heavy snowfall disrupted road, rail and air transport. The Office for National Statistics said it was hard to gauge exactly what impact the weather had made.

The total trade deficit, which includes services, narrowed to £2.95 billion from December's £5.48 billion -- its narrowest since February 2010.

The improvement was largely due to a pick-up in export volumes, which rose 6.1% on the month, excluding oil and erratic items. Import volumes on this measure rose 1.9%.

There were record levels of exports in oil, intermediate goods, and the "food, drink and tobacco" category.

The oil balance swung to a surplus of £118 million from a deficit of £727 million in December, aided by record exports of £3.56 billion.

However, economists questioned how sustained the improvement would prove to be and said it was too early to be confident that a long-awaited rebalancing of the economy was taking place.

"The sharp improvement in the UK's trade deficit in January mainly reflects temporary factors, rather than signalling that net trade is now giving strong support to the recovery," said Vicky Redwood at Capital Economics.



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