The trade deficit narrowed marginally in March. From a slightly smaller revised £14.13 billion in February, the shortfall dipped to £13.97 billion, on the soft side of the market consensus and a 3-month low. However, the modest improvement masked a contraction in both exports and imports, the former falling 3.1 percent and the latter 2.5 percent.

The red ink with the EU decreased from £11.36 billion to £10.16 billion, also a 3-month low, as exports rose 1.6 percent and imports dropped 3.8. However, with the rest of the world, the deficit widened from £2.78 billion to £3.81 billion, a 5-month high as exports slumped 7.1 percent and imports declined only 0.9 percent.

The March report leaves the overall goods balance on a modestly improving trend. Even so, it is still sizeable and exports have fallen every month so far this year. More generally though, today's updates raise the UK RPI to a solid 41 and the RPI-P to an even higher 52. Economic activity is clearly now exceeding expectations by some margin.

The merchandise trade deficit is seen deepening to £14.5 billion in March versus £14.21 billion in February.

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.