The deficit on global goods trade widened out sharply at year-end. From a smaller revised £14.66 billion in November, the shortfall climbed to £19.27 billion, its highest mark since last June and nearly £4.0 billion above the market consensus. The deterioration largely reflected a 7.7 percent monthly fall in exports, their third successive decline, although imports also contributed with a 2.9 percent advance.

The red ink with the EU increased from £11.16 billion to £11.79 billion as a 2.5 percent increase in exports was more than offset by a 3.8 percent gain in imports. However, most of the damage was caused by net trade with the rest of the world where the deficit more than doubled from £3.49 billion to £7.48 billion. Exports slumped fully 15.0 percent while imports were up 2.0 percent.

The trade data remain as volatile as ever but, despite December's disappointing report, the goods deficit still narrowed from £49.45 billion in the third quarter to £45.47 billion. This was the lowest outturn since the fourth quarter of 2021. That said, the red ink remains sizeable and an ongoing threat to the pound. Today's update puts the UK's ECDI at minus 1 and the ECDI-P at minus 5. In general, economic activity is broadly matching market expectations.

The global deficit on goods is expected to be broadly stable at £15.5 billion in December.

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 trade deficit run by the United Kingdom, since the trade shortfalls create greater net 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.