The September deficit weighed in at a surprisingly small £14.29 billion following a downwardly revised £15.52 billion in August but only a 2-month low. Moreover, the improvement only reflected a 4.5 percent monthly drop in exports that was eclipsed by an even steeper 5.6 percent slump in imports.

The deficit with the EU continued to narrow as a 3.2 percent drop in exports was outpaced by a 5.1 percent nosedive in imports. This reduced the bilateral red ink from £10.69 billion to £9.84 billion, an 11-month low. There was also a smaller fall in the shortfall versus the rest of the world as exports declined 5.8 percent versus a 6.3 percent slide in imports. As a result, the deficit dipped from £4.83 billion to £4.45 billion.

The September report and revisions put the overall third quarter shortfall at £42.77 billion, down from £48.09 billion in the previous quarter and the smallest gap since the fourth quarter of last year. The deficit is shrinking but from ominously high levels and only due to the weakness of domestic demand. Still, more generally, the UK's RPI now stands at 17 and the RPI-P at 12, both readings showing recent overall economic activity modestly outperforming market expectations.

The deficit is expected to narrow from £15.95 billion in August to a still sizeable £15.3 billion in September.

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.