The trade deficit widened by slightly more than expected in January. At £14.52 billion, the shortfall was £0.42 billion larger than the market consensus and up from December's unrevised £13.99 billion but only a 2-month high. The deterioration reflected a 2.0 percent monthly increase in imports which more than offset a 1.3 percent rise in exports.

The red ink with the EU increased from £10.67 billion to £11.09 billion as exports dropped 1.6 percent and imports climbed 0.7 percent. With the rest of the world, the deficit was £3.42 billion, little changed from December's £3.32 billion with exports up fully 4.0 percent and imports 3.8 percent.

The January report leaves the overall goods balance on a modestly improving trend. Even so, it remains sizeable and reflects more the weakness of imports than any real strength in exports. Today's updates trim the UK RPI to minus 13 and the RPI-P to minus 10, both measures showing overall economic activity falling a little short of forecasts.

The deficit on overall goods trade is forecast at £14.1 billion, little changed from December's £13.99 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.