The trade deficit climbed surprisingly sharply in April. At £19.61 billion, the shortfall was up from March's unrevised £13.97 billion and the highest since June 2022. The marked deterioration was partially attributable to weaker exports which fell 2.4 percent, their third straight drop, but mainly to stronger imports which surged fully 11.0 percent. The jump in the latter was largely on the back of a hefty increase in demand for machinery and transport equipment and fuels.

The red ink with the EU increased from £10.16 billion to £12.32 billion as exports fell 0.9 percent and imports gained 8.1 percent. However, most of the damage was done by the rest of the world where the deficit widened from £3.81 billion to £7.29 billion, the largest since August 2022. Exports here slumped 3.7 percent while imports were up some 14.7 percent.

The April report undermines what had been a modestly improving trend in the goods balance. Both sides of the balance sheet continue to be very erratic but the ongoing slide in exports, which now stand at their weakest level since January 2022, is ominous. More generally, today's updates put the UK RPI at minus 6 and the RPI-P at minus 7, both measures indicating just a very modest degree of overall economic underperformance.

The deficit is expected to widen out slightly from £13.97 billion in March to £14.20 billion in April.

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.