Optimism as trade gap narrows

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The Independent Online
BRITAIN'S return to economic health was further confirmed yesterday by evidence of a shrinking trade gap.

The deficit on trade with countries outside the European Union narrowed to pounds 262m in August. It was the lowest monthly shortfall in six years and less than half the average in the first seven months of this year.

Much of the improvement was due to trade in oil, which moved from a pounds 20m deficit in July to a pounds 61m surplus last month. The underlying balance, excluding oil, improved by pounds 41m.

Export volumes in the three months to August were 8 per cent higher than the same period a year earlier while import volumes were 2.5 per cent lower.

Richard Brown, deputy director-general of the British Chambers of Commerce, said: 'This is excellent news which shows that while British exporters are succeeding overseas we are not sucking in imports. An export-led recovery is what the economy needs and what it is getting.'

Steven Bell, chief economist at the merchant bank Morgan Grenfell, said: 'This is the latest in a run of startlingly good economic news. Growth is strong, inflation is in the bottom half of its target range and exports are booming.'

Publication of the minutes of the 28 July monetary meeting between the Chancellor and the Governor of the Bank of England brought further comfort as analysts interpreted them to mean another increase in base rates in the near future was unlikely.

Eddie George, the Governor, said at the meeting that 'an increasing number of straws in the wind' pointed to inflation picking up. He therefore saw a need to tighten policy, but said: 'A small move now would confuse, rather than reassure.' He favoured a bigger increase later.

Analysts interpreted this to mean that the half-point increase in base rates 10 days ago was likely to be the only one for now.

Publication of the minutes came amid reports that the Treasury was concerned that Bank signals to the money markets between the last meeting on 7 September and the rate increase on 12 September had been misleading.

Many City firms use the short sterling futures market to bet on short-term interest rate movements, and a number of them lost money by concluding on 8-9 September that the Bank was signalling no imminent base rate rise.

Share prices fell, with the FT- SE 100 index closing 22.5 points lower at 3,014.8. The pound and gilts ended almost unchanged.