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The UK’s trade deficit was smaller than expected in December, narrowing to £3.3bn from a revised £3.6bn the previous month.

Analysts had expected the monthly trade deficit to narrow to £3.5bn from the previous month.

On a quarterly measure, the trade deficit narrowed to £8.6bn in the final three months of the year from £14.1bn in the previous quarter primarily due to an increase in exports of goods to non-EU countries, according to the Office for National Statistics on Friday,

The value of goods imported into the UK had exceeded the value of those exported by £3.6bn in November, revised downwards from an initial £4.2bn figure, after a stronger pound helped reverse some of the rise in the cost of imports a month earlier.

The ONS said the £0.3bn narrowing in December was mainly due to an increase in exports of goods to non-EU countries of £1.1bn.

Some economists have predicted that a weaker pound will eventually improve the trade balance by boosting demand for exports and lowering demand for imports.

But in the shorter-term, they caution that the trade deficit will worsen as the immediate effect of a currency depreciation is usually to increase the cost of imported goods for consumers and manufacturers.

Sterling was 2.1 per cent higher in December 2016 compared with the previous month on average. The ONS said export prices in December increased slightly by 0.2 per cent and import prices went up by 0.1 per cent compared to November prices.

Copyright The Financial Times Limited 2017. All rights reserved.
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