View from City Road: Rosy trade figures hide a thornier reality

If anybody wondered why there was a two-day delay in publishing August's trade figures, look no further than the statistical revisions. There must have been some head-scratching as the statisticians struggled to make it all add up.

The picture is now a great deal rosier than it was: the trade gap for the first eight months of the year is pounds 1.5bn lower than previously estimated, while the trends in trade volumes have been completely reversed to show exports rising and imports falling.

But the City is rightly sceptical. The industrial output figures suggest economic recovery remains intact, with consumer spending providing much of the impetus. It is surprising, therefore, that both the value and volume of imports should have been on a downward trend since the beginning of the year. If the figures are correct, devaluation is having an implausibly beneficial effect in deterring spending on foreign goods.

The most important reasons why the figures have been changed are that seasonal adjustments have been re-estimated and the split between changes in prices and volumes has been reassessed. It will be some months before we can be confident that either has produced a more accurate picture.

August's impressive surge in exports may, for example, be partly the result of over-enthusiastic seasonal adjustment. John Marsland, economist at UBS, argues that the figures may also be distorted by a dramatic understatement of imports. The previous close relationship between import volumes from within and outside the European Union has broken down since the end of last year. He argues that, if the old relationship had remained intact, imports from the EU could have been pounds 6.5bn higher this year than is now thought. If the Central Statistical Office comes round to this line of thinking, the markets could be in for a fright.