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UK trade deficit narrows sharply - ING

FXStreet (Barcelona) - James Knightley, Senior Economist at ING, comments that UK recorded another decent trade balance number despite the strength of sterling.

Key Quotes

“The UK trade deficit narrowed sharply in January to just £600m versus £4.3bn for the same period last year and £2.1bn in December. The market had been expecting a deficit of £2.3bn.”

“This improvement was thanks to a record services surplus of £7.8bn and a sharp narrowing in the goods balance to -£8.4bn.”

“The data suggests that the narrowing of the goods deficit is mainly down to trade with non-EU countries, which may in part be helped by the weakness of sterling against the US dollar (it has fallen from 1.71 in July to just under 1.50 currently). This has certainly helped to improve international competitiveness while the plunge in the price of oil has contributed to a net fall in the oil deficit.”

“Conversely, the goods trade balance with EU countries has largely remained unchanged over the past twelve months.”

“This should perhaps be interpreted relatively positively given that sterling has strengthened against the euro, which would normally be a negative for trade. The fact that trade has been stable perhaps offers some evidence of a strengthening in the economic situation within the EU.”

“Trade was one of the few positives in the 4Q GDP report so yesterday’s even better numbers offers hope that there finally is a bit of rebalancing going on in the economy.”

“In general it is good news for growth and suggests that the strength of the pound against the euro should not be too much of a concern for the Bank of England at this stage.”

“Consequently, we are still sticking with our call for a November rate hike.”

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