UK trade deficit narrows

According to the Office of National Statistics (ONS), the UK trade deficit narrowed to £616 million in January from £2.14 billion in December, marking the deficit as at its smallest level for more than 14 years, specifically due to a steep drop in the cost of oil exports.

According to the Financial Times, statisticians said the sharp monthly narrowing was caused by a £2.5 billion fall in imports, with almost half of the fall due to the lower cost of oil.
Simon Wells, an economist with HSBC, said:

“Although the headline trade deficit has clearly been flattered by the fall in the oil price, the underlying volumes picture was favourable in January.”

Britain’s trade in services recorded its biggest ever monthly surplus of £7.8 billion in January with exports hitting a record high of just over £18 billion.

Between December 2014 and January 2015 the volume of exports rose by 2.2 per cent, while the volume of imports fell by 4 per cent.

The pound rose against the dollar after the data having hit a 20-month low overnight as investors bet on a U.S. interest rate hike coming soon.

The strong recovery of the U.S. economy and signs that the Eurozone might be on the mend are helping to improve the outlook for Britain’s exporters.

David Kern, chief economist at the British Chambers of Commerce, said that while the decline was encouraging it was “important not to overstate” the improvement, stressing that the “scale of the decline in the deficit is exaggerated by volatile factors [1]”.

Britain has relied heavily on domestic demand for its economic recovery since the middle of 2013, however trade gave Britain’s overall economic growth a boost in the last quarter of 2014 and economists said January’s data suggested it could help in the first quarter of 2015 too [2].

[1] Emily Cadman, The Financial Times
[2] Toby Melville, Reuters