UK Trade Gap Narrows In September but Export Trend Leaves Economists Disappointed

September's fall in export volumes may mean net-trade was a negative influence on GDP in Q3, although they're still up 15% for the year.

The UK trade deficit narrowed further than was expected during September, according to Office for National Statistics trade balance data, although a fall in the number of exports going out of the UK has left economists unenthusiastic about the data.

Britain’s trade deficit fell to -£11.25 billion during the three months to the end of September. This is down from the -£14.24 billion deficit seen during the preceding months and better than the consensus economist forecast for a deficit of -£12.8 billion.

The total trade deficit, which includes goods and services, was also narrower in September, at -£2.7 billion. However, it has widened sharply to just under £-9.5 billion for the three months to September (third quarter).

Trade balance data sets out the difference between imports and exports of goods and services. When a nation's exports exceed its imports, it is said to have a trade surplus, but when its imports exceed its exports - as is the case with the UK - it is said to have a trade deficit.

A rise in the trade surplus would normally be associated with a rise in Sterling, due to the increase in demand for sterling from foreign buyers of UK exports; and vice-versa for an increase in the deficit.

But despite the narrower gap, the latest figures made for grim reading according to Capital Economics' UK economist Ruth Gregory, although this has more to do with the trend in exports than it does the overall balance.

"Admittedly, the deficit in goods and services narrowed from a (downwardly-revised) £3.5bn in August to £2.8bn in September,” Gregory writes, in a note Wednesday. “But export volumes (which is what matters for GDP growth) fell by 1.8% on the quarter, compared with a 1.9% quarterly rise in imports.”

Friday’s data suggests that net-trade will have subtracted from the UK’s overall GDP in the third-quarter, as opposed to having contributed to growth. But on an annual basis, the picture is less bleak than the September data would appear to suggest. 

"Nonetheless, annual growth in export volumes was still a punchy 15% in September. And surveys suggest this strength should continue, while import growth should slow in line with weakening consumer spending growth," says Gregory. 

Sterling was volatile in the aftermath of the trade data, which were released at the same time as a host of other reports. Sterling initially rose against the Euro and Dollar only to fall moments later as markets digested the detail in the reports and positioned for the conclusion of the latest Brexit talks. 

The Pound was quoted 0.40% higher against the Euro around noon in London Friday, making for a Pound-to-Euro rate of 1.1329. The Pound-to-Dollar rate was marked 0.46% higher at 1.3204.

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