GB: Merchandise Trade

Thu May 10 03:30:00 CDT 2018

Consensus Actual Previous Revised
Level Stg-11.1B Stg-12.29B Stg-10.20B Stg-10.41B
Imports-M/M 8.1% -6.5% -7.1%
Imports-Y/Y 1.0% 0.8% -0.3%
Exports-M/M 4.4% -2.2% -4.9%
Exports-Y/Y 1.3% 3.8% 1.4%

The global shortfall on trade in goods was a surprisingly large Stg12.29 billion in March, a sharp increase on an upwardly revised Stg10.41 billion deficit in February and a 4-month high.

The headline deterioration reflected an 8.1 percent monthly rebound in imports that easily more than eclipsed a 4.4 percent recovery in exports. Moreover, the jump in the red ink could not be attributed to oil and other erratic factors as, excluding these, the deficit still widened out from Stg10.39 billion to Stg12.41 billion. Indeed, a 2.7 percent monthly gain in underlying exports was swamped by a 7.8 percent leap in imports. The bilateral shortfall with the EU was up Stg0.6 billion at Stg8.6 billion, its highest since November 2016, while the deficit with the rest of the world climbed from Stg2.4 billion to Stg3.6 billion.

Ominously, underlying volume trends which had been making progress, deteriorated. Over the first quarter, core exports actually fell 0.2 percent compared with a 1.6 percent increase in imports. Versus a year ago, the rates were 3.3 percent and 2.1 percent respectively but the gap is narrowing.

The international trade data are hardly the most reliable UK statistics but even allowing for measurement errors, the red ink remains worryingly large and a constant medium-term threat to 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.