The July deficit narrowed by more than expected. At £14.06 billion, the shortfall was down from an unrevised £15.46 billion in June and a 3-month low. The improvement mainly reflected a 3.7 percent monthly bounce in exports as imports dipped only 0.4 percent.

The deficit with the EU fell from £12.68 billion to £11.70 billion, also a 3-month low, as exports rose 3.3 percent and imports declined 1.8 percent. Net trade with the rest of the world similarly improved with exports rising 4.0 percent and imports only 1.4 percent. Indeed, the red ink here was the smallest since the middle of 2020.

The July report will boost hopes that the trade gap is finally beginning to move in the right direction. However, the monthly data are very volatile and the deficit remains uncomfortably large. More generally, today's data leave both the UK RPI (9) and RPI-P (19) in positive surprise territory meaning that economic activity is general is running a little ahead of market forecasts.

The goods deficit is seen at £15.0 billion after a £15.46 billion shortfall in June.

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.