The trade deficit widened in February but only from a smaller revised post in January and was well short of expectations. At £14.21 billion, the shortfall was up just slightly from February's amended £14.1 billion and nearly £0.8 billion below the market consensus. The modest deterioration reflected a 0.8 percent monthly fall in exports that more than offset a 0.3 percent drop in imports.

The red ink with the EU increased from £10.76 billion to £11.32 billion, a 4-month high, as exports dropped 2.1 percent and imports climbed 1.0 percent. However, with the rest of the world, the deficit was £2.99 billion, down from January's £3.34 billion as exports rose 0.3 percent and imports fell 2.0 percent.

The February report leaves the overall goods balance on a modestly improving trend. Even so, it is still sizeable and exports remain weak. Today's updates raise the UK RPI to 1 and the RPI-P to 10, indicating that while overall economic activity is evolving much as expected, the real economy is slightly outperforming.

The global goods shortfall is put at £15.0 billion, up from £14.52 billion in January.

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.