Trade gap narrows despite oil shortfall

Britain's trade gap with the rest of the world has narrowed sharply thanks to the largest rise in exports for more than two years, official figures showed yesterday.

Britain's trade gap with the rest of the world has narrowed sharply thanks to the largest rise in exports for more than two years, official figures showed yesterday.

The global trade deficit shrank to £4.6bn in September from the £5.2bn shortfall in August and confounded forecasts of a £5.1bn trade gap.

Excluding the fall in the oil balance into negative territory for the first time since August 2001, the deficit narrowed by a larger £1.2bn.

The Office for National Statistics said the driving factor was a pick-up in exports, particularly to non-European countries. While total exports rose by 4.4 per cent, the increase outside the EU was almost 11 per cent.

"This reopens the door to an upward revision to third-quarter GDP growth after last week's poor industrial production figures," Paul Dales, a UK economist at Capital Economics, said.

"The external sector may be at last benefiting from the pick-up in global activity [but] we continue to doubt that a recovery in the external sectors will be enough to offset the impact of a slowing housing market over the next year."

The upturn in exports follows the 4 per cent drop in the value of the pound since August but analysts doubted that the impact would have been felt in time for September's figures. "I don't think it would be quick enough to respond to that," George Buckley at Deutsche Bank said.

Ironically, the strength of the figures triggered a rise in sterling against both the dollar and the euro. Meanwhile, the dollar rose against the euro, cooling speculation it was about to break through the key $1.30 barrier against the single currency.

The economy grew by just 0.4 per cent in the third quarter, less than half of the pace of the 0.9 per cent second-quarter growth and encouraging the Bank of England to keep interest rates on hold last week.

Later today, the Bank will publish its quarterly growth and inflation figures that will be keenly examined by the markets for clues as to whether rates have peaked.

Since last week's decision by the Bank, there has been a run of weak data showing falling house prices and weakening retail sales.