GB: Merchandise Trade

Fri Dec 08 03:30:00 CST 2017

Consensus Actual Previous Revised
Level Stg-11.5B Stg-10.78B Stg-11.25B Stg-10.45B
Imports-M/M 2.1% 0.4% -0.7%
Imports-Y/Y 11.7% 4.0% 2.5%
Exports-M/M 1.8% 4.5% 3.3%
Exports-Y/Y 12.0% 18.1% 19.1%

The global deficit on goods trade weighed in at Stg10.78 billion in October. This was up slightly from a smaller revised Stg11.45 billion in September but broadly in line with the recent trend. The minor headline deterioration reflected a 1.8 percent monthly rise in exports, their fourth straight gain, that was more than offset by a 2.1 percent increase in imports.

The underlying shortfall, which excludes oil and other erratic items, was essentially flat at Stg11.01 billion. In line with the overall deficit, the red ink here has been effectively trending sideways despite the post-Brexit referendum slide in the pound.

Indeed, even underlying volumes are currently not responding to the currency's decline as might have been expected. Hence, over the latest three months, underlying real exports were up 2.3 percent while imports over the same period advanced 2.6 percent. That said, compared with a year ago the respective rates stand at 10.2 percent and 5.4 percent, suggesting that there has at least been a longer-term impact.

In any event, the trade deficit remains frustratingly large and an ongoing problem for the pound. Without a significant reduction in the red ink, a hard Brexit could hit the unit badly.

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.