One-third drop in trade deficit surprises City

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BRITAIN'S visible trade deficit fell by a third between March and April. Exports of goods reached record levels, while imports fell. The shortfall of pounds 803m, down from pounds 1.2bn, was substantially below City expectations.

Richard Needham, the Minister for Trade, said: 'British exporters have been putting their backs into the export drive and are winning against competition which is getting fiercer all the time.'

The markets greeted the figures - which are volatile and subject to revisions - more cautiously, but both sterling and gilts rose initially on the announcement.

Exports increased 2.6 per cent in April, while imports fell 1 per cent. In the three months to April, exports were 7 per cent higher than in the previous quarter, while imports rose only 2.5 per cent.

Half of April's pounds 410m reduction was due to erratic items - exports of precious stones were up and imports of aircraft were down.

Higher oil production in the North Sea accounted for much of the rest of the change during the month. North Sea output has finally regained the levels last seen in 1987, before the Piper Alpha explosion. The oil trade surplus rose to pounds 408m, from pounds 334m in March.

David Owen, UK economist at Kleinwort Benson, said: 'The figures were an attractive cocktail for the market.' He said moderate consumer spending growth was limiting import increases, while economic recovery in other countries was boosting exports.

Most City analysts said the figures confirmed the trade deficit was narrowing, with the consensus forecast for the year now pounds 12bn. .

With markets also affected by US figures and news from the Group of Seven summit in Naples, sterling ended the day almost unchanged against other currencies.