UK trade gap narrows but EU trade deficit hits record high

The UK trade deficit narrowed slightly in January, data from the Office for National Statistics showed, with a record level of UK traded goods deficit with EU in January adding fuel to the Brexit debate.

The goods trade balance deficit narrowed only slightly to £10.29bn, marginally better than expectations, from £10.45bn in December.

Total trade fell short of forecasts with a £3.46bn deficit that was up improved from £3.70bn the month before.

While the non-European Union trade balance narrowed to £2.2bn from £3.02bn, much better than forecasts, there was a disappointing traded goods deficit of £8.1bn with the EU, widened from £7.4bn in Decemberand the highest since data began in 1998.

This came from exports to the EU in January only inching up 0.1% as imports from the EU jumped 3.7%.

Exports of traded goods to the EU were down by 2.7% in the three months to January compared to the three months to October.

Economist Ruth Miller at Capital Economics said the trade figures suggested UK growth appeared to be "worryingly unbalanced".

"The prospects for exports in the near term still looks pretty dim. Surveys of export orders suggest little improvement and the UK is clearly not immune to a weaker global environment," she said. "What’s more, the 8% or so fall in trade-weighted sterling since around mid-November will take some time to support exporters, due to the time lags involved in renegotiating contracts.

"So for now, the responsibility for sustaining the economic recovery continues to fall squarely on domestic demand."

However, Howard Archer at IHS Global Insight took the line that the data could provide a "small boost to hopes that net trade will not weigh down on UK GDP growth as was the case through the second half of 2015".