GB: Merchandise Trade

Fri Aug 07 03:30:00 CDT 2015

Consensus Actual Previous
Level Stg-9.1B Stg-9.18B Stg-8.00B
Imports-M/M 1.5% -4.1%
Imports-Y/Y -0.1% -6.4%
Exports-M/M -1.0% -0.1%
Exports-Y/Y 4.5% 0.1%

The goods trade gap widened to Stg9.2 billion in June from May while the total trade gap widened to Stg1.6 billion from Stg0.9 billion. The May total trade gap was the narrowest for 23 months and the June widening is only a partial reversal of this. The total reflects a deficit of £9.2 billion on goods, partially offset by an estimated surplus of £7.6 billion on services and its narrowest since the second quarter of 2011.

Total exports were Stg43.2 billion in June, down from Stg43.5 billion in May but the second highest since last December. A National Statistics official cited strong exports of chemicals to non-EU countries, which were up Stg1.4 billion and oil exports, up Stg0.8 billion.

Rising exports led to the UK's total trade gap shrinking in the second quarter to its narrowest since the second quarter of 2011. The total trade deficit was Stg4.8 billion down from Stg7.5 billion in the first quarter. The substantial narrowing in the deficit entails trade will make a positive contribution to second quarter GDP.

In the second quarter April to June 2015, the trade in goods deficit narrowed by Stg3.0 billion to Stg27.4 billion. Exports increased by Stg3.1 billion to Stg74.5 billion, attributed to an increase in chemical exports (Stg1.3 billion), exports of fuels (Stg1.0 billion) and machinery & transport equipment (Stg0.6 billion). Imports increased by stg0.1 billion to Stg102.0 billion over the same period. In the second quarter, the trade in services surplus narrowed by Stg0.3 billion to Stg22.6 billion. There was a decrease of Stg0.1 billion in exports and a Stg0.2 billion increase in imports over the same period.

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.