GB: Merchandise Trade

Fri Mar 09 03:30:00 CST 2018

Consensus Actual Previous Revised
Level Stg-12.0B Stg-12.33B Stg-13.58B Stg-11.77B
Imports-M/M 3.5% 3.8% -1.0%
Imports-Y/Y 7.9% 7.9% 2.3%
Exports-M/M 3.1% 1.5% 0.9%
Exports-Y/Y 7.3% 4.0% 2.6%

The global shortfall on goods trade widened out from a significantly smaller revised Stg11.77 billion in December to a much as expected Stg12.33 billion in January.

The deterioration reflected strength in both sides of the balance sheet with exports jumping 3.1 percent on the month and imports gaining 3.5 percent. Excluding oil and other erratic items, the red ink stood at Stg11.79, its worst reading since last August, as a 0.8 percent monthly rise in exports was easily eclipsed by a 3.0 percent spurt in imports.

The trade deficit with the rest of the EU was Stg8.46 billion, up from Stg7.88 billion last time and its highest mark since November 2016, but the shortfall with the rest of the world narrowed very slightly from Stg3.89 billion to Stg3.87 billion, a 3-month low.

Despite the still disappointingly large deficits, underlying volume trends continue to move in the right direction. Hence, core exports in the latest three months were up 5.9 percent on the year while their import equivalent was only 1.2 percent higher. That said, until such time as favourable volume developments begin to dictate the headline data, the red ink will remain a bear factor for the pound.

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.