GB: Merchandise Trade

Wed Apr 11 03:30:00 CDT 2018

Consensus Actual Previous Revised
Level Stg-12.0B Stg-10.20B Stg-12.33B Stg-12.23B
Imports-M/M -6.5% 3.5% 2.0%
Imports-Y/Y 0.8% 7.9% 6.3%
Exports-M/M -2.2% 3.1% 1.3%
Exports-Y/Y 3.8% 7.3% 5.4%

The global shortfall on trade in goods narrowed unexpectedly sharply in February. A Stg10.20 billion deficit was comfortably below market expectations and the least red ink since April 2017.

However, the headline improvement masked significant contractions in both sides of the balance sheet. Hence, exports fell 2.2 percent on the month while imports plummeted 6.5 percent. The deficit with the rest of the EU was Stg7.97 billion, down only marginally from Stg8.19 billion in January. This left the bulk of the decline to trade with the rest of the world where the shortfall dropped from Stg4.04 billion to Stg2.24 billion.

Around half of the decline in the overall red ink reflected a favourable swing in oil and other erratic items and excluding this category, the deficit narrowed by only around Stg1 billion to Stg10.56 billion. That said, this was also the best underlying outturn in ten months.

Despite the surprisingly small February print, the red ink on goods trade remains frustratingly large. Disappointingly, underlying real trade flows have moved in the wrong direction too. Thus, over the last three months, core export volumes were up only 0.2 percent compared with a 0.3 percent rise in comparable imports. The impact of sterling depreciation appears to be fading and while this is good news for getting inflation down, it does not bode well for tackling the UK's persistently hefty external imbalance.

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.