The deficit on global goods trade narrowed slightly at the start of the year. From an unrevised £19.27 billion in December, the shortfall dipped to £17.86 billion. However, this was broadly in line with the market consensus and only a 2-month low. It was also well above the £15.16 billion average seen in the fourth quarter of 2022. Moreover, the limited improvement masked a sharp contraction in both sides of the balance sheet with exports tumbling 9.4 percent on the month and imports 8.7 percent.

However, excluding precious metals, the picture was rather better. Exports fell only 1.2 percent on the month while imports were down 6.3 percent. This made for a deficit of £7.27 billion, well down on December's exceptionally large £11.44 billion and a 3-month low. On this measure, the trend in the red ink is broadly flat.

The trade data remain as volatile as ever and, as such, of only limited importance to financial markets. Even so, the deficit remains a potential problem for the pound, especially should UK interest rates top out earlier than those in the U.S. and/or continental Europe. Today's updates put the UK's ECDI and ECDI-P at 41 and 40 respectively, showing that economic activity in general is running a good deal hotter than expected.

The overall goods deficit is expected to narrow from £19.27 billion in December to £18.0 billion.

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.