GB: Merchandise Trade

Fri Nov 10 03:30:00 CST 2017

Consensus Actual Previous Revised
Level Stg-12.6B Stg-11.25B Stg-14.24B Stg-12.35B
Imports-M/M 0.4% 4.5% 1.5%
Imports-Y/Y 4.0% 8.8% 4.1%
Exports-M/M 4.5% 1.5% 1.3%
Exports-Y/Y 18.1% 12.1% 12.4%

September's global shortfall on goods trade narrowed from a significantly downwardly revised Stg12.35 billion in August to a smaller than expected Stg11.25 billion, a 4-month low.

The decline in the red ink reflected a monthly 4.5 percent bounce in exports that easily more than offset a 0.4 percent rise in imports. Annual growth of the former now stands at 18.1 percent or more than four times the 4.0 percent posted by imports. Even so, over the third quarter, exports were still 0.9 percent below their level in April-June while imports advanced 2.7 percent.

In fact, the underlying trade deficit, which excludes oil and other erratic items, recorded only a modest reduction, narrowing from Stg12.10 billion to Stg11.50 billion. This made for a third quarter shortfall of Stg34.42 billion, up from the second quarter's Stg32.22 billion.

Indeed, underlying volume trends remain disappointing. Hence, quarterly growth of real core exports was just 0.6 percent compared with import growth of 2.0 percent. As such, today's report still suggests that the benefits of the weaker pound are emerging only slowly. The trade data are certainly not seen as the most accurate of UK statistics but, as they stand, they leave a deficit that is uncomfortably large, particularly given all the uncertainty surrounding Brexit.

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.