The deficit in May widened out from a smaller revised £14.64 billion in April to £18.72 billion. This was well above the market consensus and its worst performance so far in 2023. The deterioration reflected a 6.0 percent monthly fall in exports together with a 4.2 percent gain in imports.

The deficit with the EU increased from £10.00 billion to £11.97 billion, a 5-month high, as exports slumped 7.7 percent and imports climbed 2.8 percent. With the rest of the world, the shortfall rose from £4.64 billion to £6.76 billion with exports falling 4.5 percent and imports increasing 5.8 percent.

The trade data remain highly volatile but on a quarterly basis, the deficit looks to be trending sideways or slightly higher as exports (minus 4.5 percent) and imports (minus 4.4 percent) contract at similar rates. More generally, today's update puts the UK's ECDI and ECDI-P at 18, indicating that overall economic activity is running slightly ahead of market expectations.

The deficit is seen widening out slightly to £15.5 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.