UK trade balance narrows more than expected in October

Britain's trade deficit narrowed more than forecast in October, after the previous month figures were revised upward following a miscalculation in how trade in gold was recorded.

According to data released by the Office for National Statistics (ONS) on Friday (9 December), the trade deficit in October narrowed to £1.97bn from £5.81bn ($7.3bn, €6.89bn) in September, a figure which was revised upward from the previous £5.2bn.

The deficit in goods alone narrowed from September's upwardly revised £13.8bn to £9.71 bn in October, comfortably beating expectations for a figure around the £11.8bn mark.

"While the monthly data are extremely volatile, the narrowing in the trade deficit in October sets a solid base for trade in the fourth quarter," said Scott Bowman,
UK economist at Capital Economics.

"What's more, trade should be further supported in the coming months by the fall in sterling seen since the EU referendum, which should improve exporters' competitiveness and encourage domestic production at the expense of imports."

On Tuesday the ONS admitted making major errors in the calculation of Britain's trade deficit between January 2015 and September this year, related to a mis-classification of figures it had received on the trade in gold.

While the error meant Britain's record current account deficit was slightly smaller than thought in 2015 and early 2016, the country's trade deficit in the first quarter after the Brexit referendum in June surged to £14.9bn.

Britain's statistical office added the correction pointed to a deficit as wide as £17bn, which would have been the largest on record, although data released on Friday allayed those fears.

Meanwhile, export volumes in the three months to October declined 2.1% quarter-on-quarter, while imports grew 4.4%.

"The hope for the UK economy going forward is that the substantial overall weakening of the pound since the UK voted to leave will increasingly feed through to boost foreign demand for UK goods and services," said Howard Archer, chief European and UK economist at IHS Markit.

"This is all the more important given the weakening prospects for domestic demand due to likely deteriorating consumer fundamentals and increased uncertainty when the UK starts the Brexit process by triggering Article 50."