GB: Merchandise Trade

Fri Jan 09 03:30:00 CST 2015

Consensus Actual Previous Revised
Level Stg-9.7B Stg-8.85B Stg-9.62B Stg-9.84B
Imports-M/M -3.2% -2.0%
Imports-Y/Y -4.8% -3.0%
Exports-M/M -0.4% 0.9%
Exports-Y/Y -1.1% -1.7%

November's global shortfall in goods trade was a smaller than expected Stg8.85 billion after a slightly larger revised Stg9.84 billion deficit in October.

Excluding oil and other erratic items the deficit was Stg8.60 billion, down from Stg9.20 billion last time and the least negative outcome since March.

The headline improvement, which saw the red ink at its lowest level since June 2013, mainly reflected a Stg0.9 billion narrowing in the bilateral shortfall with non-EU countries to Stg2.6 billion. Net exports to other EU countries were in a Stg6.2 billion deficit, little changed from October's Stg6.3 billion. Total exports fell 0.4 percent on the month while imports were down 3.2 percent.

The monthly data are very volatile but today's update at least offers hope that underlying trends may be moving in the right direction. Hence over the latest three months core export volumes were 1.2 percent above the previous period while comparably measured imports were 0.2 percent weaker. Compared with a year ago the equivalent figures were 1.6 percent and 0.4 percent respectively.

As such, the November report should be mildly positive for the pound even if the bigger external trade picture remains a longer term threat.

Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade. In the UK the main market focus is the global goods balance as this is seen as a better guide to the economy's competitiveness.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets.

Imports indicate demand for foreign goods and services in the UK. Exports show the demand for UK goods in countries overseas. The pound sterling can be particularly sensitive to changes in the chronic trade deficit run by the United Kingdom, since the trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.

The UK's trade balance is particularly susceptible to swings in the oil account and so within the overall goods balance, financial markets will normally focus on the balance excluding oil and other erratic items.