GB: Merchandise Trade

January 11, 2017 03:30 CST

Consensus Actual Previous Revised
Level Stg-11.2B Stg-12.16B Stg-9.71B Stg-9.89B
Imports-M/M 8.4% -5.2% -6.0%
Imports-Y/Y 17.4% 5.6% 4.7%
Exports-M/M 2.8% 8.7% 6.7%
Exports-Y/Y 13.5% 16.5% 14.4%

The deficit on total trade in goods widened sharply and more markedly than expected in November. At Stg12.16 billion, the shortfall was up significantly from a slightly larger revised Stg9.89 billion in October albeit at least still below September's Stg13.83 billion peak.

The headline deterioration was essentially matched by the underlying deficit which excludes oil and other erratic items. The red ink here increased from Stg9.48 billion to Stg11.44 billion, its second highest outturn so far in 2016.

Overall goods exports were up 2.8 percent on the month but this was swamped by an 8.4 percent surge in imports that more than reversed October's 6.0 percent slump.

Regionally the damage was done mainly by non-EU countries where the deficit expanded from Stg2.12 billion to Stg3.58 billion. However, the bilateral position with other EU members also worsened; the shortfall here climbing from Stg7.77 billion to Stg8.59 billion, a 2016 high.

Recent revisions and measurement problems have undermined much of the credibility of the UK external trade data. However, for what it is worth, the latest figures make quite disappointing reading. That said, sterling's depreciation continues to cloud the picture and underlying volume trends are rather more positive. Hence, over the last three months, core export volumes were up 3.7 percent compared with a 2.5 percent rise in imports. Even so, the bottom line is that the UK's current account deficit remains a major threat to the pound should Brexit worries hit would-be overseas capital inflows.

The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness. Data are supplied by over 30 sources including several administrative sources, HM Revenue and Customs (HMRC) being the largest.

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.