GB: Merchandise Trade

Fri Feb 09 03:30:00 CST 2018

Consensus Actual Previous Revised
Level Stg-11.6B Stg-13.58B Stg-12.23B Stg-12.46B
Imports-M/M 3.8% 2.1% 1.8%
Imports-Y/Y 7.9% 5.7% 4.9%
Exports-M/M 1.5% 1.0% -1.9%
Exports-Y/Y 4.0% 6.6% 4.6%

The global shortfall on goods trade was a much larger than expected Stg13.58 billion in December. This followed an upwardly revised Stg12.46 billion deficit in November and put the red ink for calendar 2017 at some Stg138.0 billion, a disappointing Stg2.5 billion increase from 2016. On the month, exports were up 1.5 percent but were outpaced by a 3.8 percent bounce in imports.

However, the monthly deterioration was wholly due to a Stg1.2 billion worsening in the erratics balance and excluding this item and the equally volatile oil component, the shortfall actually narrowed slightly from Stg11.33 billion to Stg11.04 billion.

The bulk of the damage to the headline print was caused by non-EU countries where the red ink increased Stg0.67 billion to Stg5.18 billion. The shortfall with the EU was Stg8.40 billion, up from Stg7.95 billion last time.

The December deficit is clearly disappointing but, not for the first time, masks much healthier developments in the underlying real trade position. Hence, excluding oil and erratics, export volumes rose a quarterly 1.1 percent versus a 0.5 percent fall in imports. Compared with the same three months of 2016, the respective rates were 7.3 percent and 1.6 percent. Over time the unfavourable swing in relative export/import prices caused by the pound's depreciation will dissipate and the headline red ink will begin to reflect more the improvement in real trade flows. However, for now the nominal deficit is worrying large and amidst renewed turmoil in the stock markets, leaves the currency looking decidedly vulnerable.

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.