The March deficit weighed in at a slightly smaller than expected £16.36 billion following a downwardly revised £16.64 billion in February. However, the minor improvement masked further shrinkage in both sides of the balance sheet with exports falling 3.3 percent and imports 2.8 percent.

The balance with the EU was essentially flat at £10.9 billion as exports slipped a monthly 0.2 percent and imports rose 0.1 percent. With the rest of the world the deficit improved marginally from £8.5 billion to £5.5 billion as exports dropped 6.0 percent and imports 5.9 percent.

At £48.9 billion, the total goods deficit in the first quarter was up from £45.3 billion in the previous period and the largest since the second quarter of 2022. The data remain highly volatile and at best the trend in the red ink is only flat. Today's update leaves the UK's ECDI and ECDI-P above zero and so still indicates slightly faster than expected growth of overall economic activity.

The merchandise trade deficit is seen narrowing to £17.0 billion in March versus a £17.53 billion deficit in February.

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.