Trade deficit narrows to 11-month low in January

Britain's trade deficit narrowed to its lowest level in 11 months in January, raising hopes that private sector, export-led growth may balance the economic hit from public spending cuts.

The UK deficit on trade in goods and services dropped to £3bn in January, compared with a record £5.5bn the previous month, the Office for National Statistics said. The December deficit was boosted by unusually high imports of aircraft, ahead of tax changes in the new year, while the bad weather weighed on exports.

Within the total, trade in services recorded a surplus of £4.1bn in January, compared with £4.2bn the previous month. But the deficit on trade in goods narrowed by £2.6bn to £7.1bn.

Economists warned yesterday that the positive figures for January trade might be as much of an over-correction as December's unusually high deficit. But evidence of strong foreign orders in the manufacturing sector nonetheless points to continued rebalancing at least in the short term.

"So far, hopes that decent global growth and a weak pound will allow exports to grow more than imports and help the economy become more balanced have been repeatedly thwarted," Howard Archer, at IHS Global Insight, said. "The trade figures for January show welcome sharp improvement, and significantly lift hopes that net trade will make a decent positive contribution to GDP growth in the first quarter of 2011."

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