The UK's merchandise trade report for August 2025 showed that trade deficit further fell to minus £21.18 billion from a revised £20.65 the previous month, performing marginally better than market expectations but still reflecting underlying weaknesses. Imports fell by 1.2 percent month-over-month, largely due to a decline in purchases from non-EU countries, while exports plunged by 3.6 percent, marking a sharp reversal from July's gains. The year-over-year fall in exports (minus 10.0 percent) compared with gains from imports (4.9 percent) underscores the sustained imbalance between the UK's external demand and supply capacity.

Notably, exports to the United States dropped by £0.7 billion, driven partly by weaker trade in precious metals, revealing continued vulnerability to fluctuations in global commodity markets. While the services sector remains a bright spot, the widening goods trade gap continues to weigh on overall performance. Hence, despite modest resilience in services, the figures signal that external trade remains a drag on the UK's economic recovery, taking the RPI and RPI-P to 3. This means that economic activities are in line with the expectations of the UK economy.

The consensus looks for the trade gap at $22 billion again.

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.