GB: Merchandise Trade

Wed Jan 10 03:30:00 CST 2018

Consensus Actual Previous Revised
Level Stg-10.7B Stg-12.23B Stg-10.78B Stg-11.68B
Imports-M/M 2.1% 2.1% 0.9%
Imports-Y/Y 5.7% 11.7% 10.4%
Exports-M/M 1.0% 1.8% -2.9%
Exports-Y/Y 6.6% 12.0% 6.8%

The red ink on global goods trade increased to a surprisingly large Stg12.23 billion in November and that from a larger revised Stg11.68 billion in October. The mid-quarter print constituted the worst performance by the external sector since September 2016.

The deterioration was due to a 1.0 percent monthly rise in exports that was more than offset by a 2.1 percent bounce in imports. Annual growth of the former eased from 6.8 percent to 6.6 percent and of the latter from 10.4 percent to 5.7 percent. The shortfall with the rest of the EU actually narrowed from Stg8.30 billion to Stg7.56 billion, but this was more than offset by an increase in the red ink with the rest of the world from Stg3.37 billion to Stg4.68 billion, its highest mark since June.

The underlying picture was little better with the deficit excluding oil and other erratic items widening from Stg10.66 billion to Stg11.07 billion, a 4-month peak. Core exports rose 0.5 percent on the month but were outpaced by a 1.6 percent gain in imports.

The nominal November data are again disappointing but changes in relative prices prompted by sterling's depreciation remain a key factor. Underlying volume trends are more positive. Hence, over the last three months, core export volumes were up 2.6 percent while imports were only flat. Accordingly, the implications for fourth quarter real GDP growth are much less negative than first appearances might suggest.

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.