Oil and aircraft-part exports swing trade balance to surplus

Britain's goods trade gap with the rest of the world shrank more than expected in October as the oil balance swung back into a small surplus, official figures showed yesterday.

The Office for National Statistics said the deficit on the goods trade gap narrowed from £5.6bn in September to £4.6bn in October, the lowest gap in four months. The £1bn turnaround was helped by a swing from September's £570m deficit on oil into a £64m surplus. The ONS said the improvement was also driven by exports of aircraft and parts to the EU in October, leaving monthly goods exports at £18.5bn, the highest since records began in 1697.

Stripping out oil and erratics, the improvement in the underlying deficit was more modest, coming in at £4.8bn compared with September's £4.9bn. Economists in the City said even tentative signs of an export-led recovery would be well received in the Treasury. This week's pre-Budget report pencilled in a rise in exports of more than 5 per cent over the coming three years.

Year-on-year growth in exports is running at 16 per cent, even though the most recent manufacturing data showed that factory output fell for the third month running in October. "With the trade data in October continuing to show a solid upswing in core export volumes and retail sales showing signs of a pick-up, there is a question why the upswing in manufacturing output has faltered," said Allan Monks, a UK economist at JP Morgan.

Financial markets shrugged off the figures as they did little to alter a steady outlook for interest rates from the Bank of England after the Monetary Policy Committee held them at 4.5 per cent on Thursday. The total goods and services trade gap also narrowed, to £2.9bn from £3.9bn the month before, thanks to a £1.7bn surplus on services.

The ONS said its latest estimate of the trend was that the deficit in just goods and in goods and services was fairly flat in recent months, while both export and import volumes were rising.

Stronger growth on continental Europe is helping to boost demand for British products in the region. Exports to the EU grew 4.1 per cent in October to £10.3bn, helped by demand for aircraft and parts, the statistics office said.

Imports dropped 1.2 per cent to £12.7bn. That meant the trade deficit with the EU narrowed to £2.4bn from £3bn pounds in September. The deficit with the rest of the world also narrowed, to £2.2bn from £2.6bn, mainly due to a £500m fall in imports of predominantly consumer goods.

The trade figures continued to be distorted by the impact a multimillion pound VAT fraud, the statistics agency said.