UK trade deficit narrows due to surprise increase in exports

UK balance of payments improves sharply, but economists cast doubt on reliability of figures

The UK's trade deficit registered a surprise contraction in October, driven by a surge in exports.

The latest report from the Office for National Statistics shows Britain's balance of payments gap fell to £1.6bn, down from £4.3bn in September. The overall deficit is now at its lowest level since April.

Britain's deficit in the trade of goods fell at its fastest rate since records began in 1988, down from a record £10.2bn in September to £7.6bn. Total goods exports rose by £2.1bn to £26.5bn. Imports fell £500m to £34.1bn. Exports to non-EU states rose to a record £12.6bn. Exports to EU member states rose to £13.9bn. Goods sold to France surged by £427m and to Germany by £187m. British exports to the US and China rose by £127m and £101m.

Imports from EU countries fell by £600m, although they rose slightly from the rest of the world. The UK's imports from Ireland fell sharply, down by £238m. Imports from Italy were £102m lower. Britain's long-standing international trade surplus in services rose to £6bn.

The export surge was led by sales of medical products to the US and telecommunications equipment to France and Sweden. The squeeze on imports was driven by declines in consumer goods, according to the ONS.

Analysts doubted the reliability of the report, pointing out that it contradicts the findings of recent surveys of business purchasing managers. "A closer look at the figures reveals a variety of inconsistencies," said Nida Ali, an economic adviser to the Ernst and Young Item Club. "Manufacturers have been reporting a slowdown in demand from non-EU countries as well, so a monthly increase in export volumes to non-EU countries of nearly 13 per cent doesn't quite add up".

Vicky Redwood of Capital Economics suggested the improved trade results might have been driven by a number of one-off transactions. "Having spoken to the ONS, we understand that a number of erratic forces seemed to be at work" she said. "For example, consumer goods exports were boosted by £300m of exports of works of art. And an unusually big £600m rise in chemicals exports was driven by bigger exports of medical products to the US. Presumably these are largely one-offs."

Howard Archer of IHS Global Insight said that, even if accurate, trade improvement was unlikely to be sustained. "UK exports are particularly vulnerable to weaker eurozone economic activity and it now looks highly probable that the eurozone is headed back into recession" he said.

However, if they are accurate, these trade figures could result in a boost to GDP in the final three months of the year, possibly even helping Britain to avoid a double-dip recession.

"If the current level of volumes is sustained then net trade could make an extraordinarily large contribution to GDP growth in the fourth quarter," said Allan Monks of JP Morgan.