Export volumes fell in March, although non-EU sales volumes picked up sharply again in April. But import volumes fell by more before they too rebounded. In addition import prices have fallen faster than export prices.
The net result was a decline of pounds 100m in the global trade deficit to pounds 671m in March. Trade with EU countries accounted for the improvement, the UK's shortfall dwindling to a mere pounds 20m.
The non-EU deficit rose in March but shrank from pounds 651m to pounds 335m in April.
The Office for National Statistics said the trend in both import and export volumes was flat. Dharshini David, an economist at HSBC Markets, said there were few clear signs that the strength of sterling was damaging the trade position yet.
Most economists still expect the damage to show up later this year, following survey evidence indicating declining export orders.
The figures showed a divergence between Britain's trade with the EU countries and with the rest of the world. The pace of growth in exports to Europe has declined, with their underlying growth down to 1.5 per cent in the year to March, in line with the fact that the pound has risen more against European currencies.
Exports to the rest of the world have in fact maintained a healthy pace. They grew by 13 per cent in underlying terms in the year to April.
"Buoyant non-EU exports are unlikely to offset fully the down-trend in EU exports in coming months," said Richard Iley at Hoare Govett.
More surprisingly, growth in import volumes, excluding oil and erratic items, from the EU has also slowed sharply despite the exchange rate move and the buoyant state of the economy. Likewise, growth in non-EU import volumes has fallen off until April when it surged again.
The surplus on trade in oil improved from pounds 443m in February to pounds 604m in March.
However, this might go into reverse in the next set of trade figures. Falling oil prices and warmer weather slashed Britain's oil and gas revenues by nearly 7 per cent last month to their lowest level since last August, according to the Royal Bank of Scotland.
It said oil production was down by 2.5 per cent to 2.51 million barrels a day, the fifth successive monthly fall, and oil prices fell from $19.17 to $17.71 a barrel, 15 per cent below last April's levels.
Some City analysts queried the big jump in both imports and exports recorded in April's figures. Most were cautious about reading anything into the surprisingly favourable deficits.
However, economic forecasts for growth this year have all factored in a worsening trade position counteracting the surging domestic economy.
"If sterling's impact is turning out to be more moderate than our forecasts imply, the major offset we expect to booming domestic demand this year may be slipping away," said Adam Cole, UK economist at James Capel.
The combination of helpful trade figures and the row between the Bundesbank and German government took the pound up yesterday.
It ended slightly higher at DM2.7825.Reuse content