GB: Merchandise Trade

Fri May 08 03:30:00 CDT 2015

Consensus Actual Previous Revised
Level Stg-9.5B Stg-10.1B Stg-10.34B Stg-10.8B
Imports-M/M -1.0% 0.8% 2.6%
Imports-Y/Y -0.1% -1.6% 0.5%
Exports-M/M 1.4% -3.7% -3.9%
Exports-Y/Y -7.1% -4.1% -3.0%

The shortfall on global goods shrank by less than expected in March. At Stg10.1 billion the deficit was down only Stg0.7 billion from a larger revised February posting.

The limited improvement reflected a 1.4 percent monthly rise in exports, itself built on gains in material manufactures and chemicals. Imports fell 1.0 percent as a drop in manufactured products was partially offset by an increase in fuels. However, the volumes picture was very different. Excluding oil and erratics, real exports fell a monthly 1.0 percent and now show no growth since December last year. Underlying import volumes were flat at their mid-quarter level and are 1.7 percent higher than in December.

Net exports to other EU countries improved by Stg0.5 billion to a Stg7.0 billion deficit while the shortfall with the rest of the world dipped by just Stg0.1 billion to Stg3.2 billion.

For the first quarter the red ink stood at Stg29.9 billion, a rise of Stg0.8 billion versus the previous period and another major disappointment for policymakers seeking to achieve a more balance structure to the UK's economic recovery. Taken together with the deterioration in the underlying real trade balance, today's report potentially stokes up more problems for the pound's medium-long term outlook. Moreover, the data increase the risk of a downward revision to first quarter real GDP growth.

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.