UK trade deficit drops sharply

Rise in exports lifts expectations that trade will boost first-quarter GDP
Britain's trade deficit has dropped sharply, fuelling hopes that trade will make a strong contribution to GDP growth in the first quarter of this year.

Record exports of oil, food, drink and tobacco reduced the trade in goods shortfall to £7.1bn in January, the smallest in nearly a year, the Office for National Statistics said. It hit a record deficit of £9.7bn in December.
Oil exports leapt by £559m while food, drink and tobacco sales were up £281m in January from December. Excluding oil and other erratic items, export volumes were still 6.1% higher while imports increased by just 1.9%.

The figures are volatile, however, and the December figure was affected by the harsh winter weather that brought large parts of the country to a standstill.
"After hitting a record high in December due to the weather-related disruption to activity, it's no surprise that the trade gap narrowed in January," said Hetal Mehta of Daiwa Capital Markets.

"Nevertheless, the marked improvement in the trade gap is good news for the rebalancing story, particularly with exports of goods picking up strongly which tallies with the strong performance of the manufacturing sector. If this trend continues, it is likely that net trade will make a positive contribution to GDP growth."

Howard Archer of IHS Global Insight concurred, saying trade could make a "decent positive contribution" to growth between January and March. In the fourth quarter and 2010 as a whole, trade dragged down the overall economy.

However, some economists were skeptical that the improvement would last. Vicky Redwood of Capital Economics said: "Survey measures of export orders have continued to strengthen. But the underlying trend in imports remains just as strong. Overall, then, we continue to doubt that net trade will be able to compensate for the intensifying fiscal squeeze."

Guardian