Fall in sterling helps trade gap to narrow

Britain's global trade deficit narrowed sharply in July, official figures revealed yesterday, fuelling expectations of a bumper third-quarter boosted by external demand for UK goods.

The Office for National Statistics said the global goods deficit improved from £4.5bn in June to £3.3bn last month, much better than analysts' expectations of a £4.1bn shortfall. It was the narrowest gap since March.

Although the improvement was tempered by a warning that computer problems were still distorting the figures, the recovery reignited speculation that interest rates may rise before the end of the year. Overall, statisticians said the trend remained flat.

The better-than-expected performance was because of a 15.3 per cent rise in exports to countries outside the European Union, particularly to the US. This meant the deficit with non-EU countries narrowed to £1.7bn from £2.6bn in June, when the ONS warned that a new computer system at Customs & Excise meant non-EU exports were being underestimated.

Economists cautioned about reading too much into volatile data but said the figures suggested optimism over the global recovery was well placed.

The trade gap with EU countries, which take about 55 per cent of the UK's goods exports, shrunk to £1.5bn from £1.8bn last month, its smallest since May 2002.

The trade deficit stood at 4.3 per cent of GDP in the three months to July, down from its recent high of 5 per cent in the final quarter of 2002.