The August deficit was a good deal larger than expected. At £15.95 billion, the shortfall was up from a smaller revised £13.91 billion in July and a 3-month high. The deterioration reflected both weaker exports, which fell 3.7 percent on the month, and stronger imports, which rose 1.8 percent.

The deficit with the EU actually narrowed again, from £12.25 billion to £11.05 billion, a 3-month low, as exports rose 0.2 percent and imports declined 0.7 percent. However, net trade with the rest of the world worsened markedly as a 7.1 percent slump in exports combined with a 5.0 percent jump in imports to boost the red ink from £2.65 billion to £4.90 billion, a 3-month peak.

The August report just about leaves a declining trend in the overall shortfall but, if so, only because imports are falling faster than exports. The deficit remains uncomfortably large and could weigh on the pound if UK interest rates have finally topped out. More generally, today's data put the UK RPI at 7 and the RPI-P at 10, both readings close enough to zero to indicate economic activity in general is running much as the forecasters predicted.

The shortfall is seen little changed at £14.2 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.