The policy dilemma on interest rates facing the Government was brought sharply into focus yesterday, with UK trade data for January showing a continuing divergence between robust exports and slackening consumer demand at home.
British exports to countries outside the European Union grew 3.8 per cent in January, compared with December, while imports dropped 7.6 per cent. Including oil and other erratic items such as ships and precious stones, the non-EU trade deficit contracted sharply from December's £913m to £303m - a fall welcomed by economists relieved that the good news on trade seen last year was not necessarily over.
Total value of exports in January was £4.941bn and the value of goods imported was £5.244bn. Excluding oil and erratic items, the non-EU trade deficit shrank to £138m from £762m, the smallest monthly shortfall since January 1988.
The overall figures, according to some commentators, will help to relieve some of the political pressure on sterling. They said the numbers further highlighted the unusual shape of the recovery, and endorsed views that it will be some time yet before living standards register a solid improvement.
Michael Heseltine, President of the Board of Trade, said: "It is particularly pleasing to see that exports by finished manufacturing companies were so strong in January that they were virtually in balance. Taking the last three months compared with the same period last year, the volume of exports of finished manufactures is up nearly 12 per cent. We are doing well almost all over the world."
Better trade figures were expected in the City, which is becoming more convinced the manufacturing recovery will continue strongly in the light of additional news from the Confederation of British Industry that export orders were at their highest since 1977.
Economists said yesterday, however, that it should by no means be taken for granted that a favourable trend had been established so soon after December's trade deficit, the worst for two years.
Mark Reckless, economist at SG Warburg, said that it was too soon to tell whether the non-EU December trade figure was a rogue number.