GB: Merchandise Trade

Tue Oct 10 03:30:00 CDT 2017

Consensus Actual Previous Revised
Level Stg-11.2B Stg-14.24B Stg-11.58B Stg-12.83B
Imports-M/M 4.5% -0.1% 0.7%
Exports-M/M 1.5% -0.3% -2.4%
Imports-Y/Y 8.8% 9.0% 11.5%
Exports-Y/Y 12.1% 12.8% 11.8%

The deficit on global goods trade was a whopping Stg14.24 billion in August, up from an already larger revised Stg12.83 billion in July. The surprisingly sharp headline deterioration reflected a 4.5 percent monthly jump in imports that swamped an otherwise perfectly decent 1.5 percent rise in exports.

The ONS warned that sharp swings in the balance on erratic commodities were an important factor distorting the data. However, the underlying position, which excludes oil and other erratic items, was little better with the shortfall here widening out from Stg10.81 billion to some Stg12.41 billion. Core exports were up 0.8 percent on the month but imports surged 5.1 percent.

Taken at face value the August trade figures are very poor. Despite the slide in sterling, over the last three months underlying export volumes have decreased 0.1 percent while comparably measured imports have risen 1.0 percent. Annual growth rates of 10.1 percent and 8.1 percent look rather better but the picture is still disappointing. For some time now the trade reports have been viewed with scepticism by financial markets and this latest update is unlikely to change that view.

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.