Surprise narrowing in trade deficit to £4.4bn

The Government received the first positive piece of economic news since the start of its third term yesterday as the UK's trade gap narrowed unexpectedly.

The Government received the first positive piece of economic news since the start of its third term yesterday as the UK's trade gap narrowed unexpectedly.

A surge in British exports and a fall in imports cut the goods deficits to £4.4bn in March from £5.0bn in the previous month and the lowest for exactly a year.

The Office for National Statistics said the improvement was driven by a "substantial" cut in the deficit with non-European Union countries from £2.7bn to £2bn. It said the exports to the non-EU jumped by £500m particularly for capital goods, intermediate goods - goods used by factories - and oil. Imports from non-EU fell.

Analysts had expected another £5bn shortfall, and some said the data sat oddly with Monday's figures showing a collapse in factory output to a 10-year low.

The ONS warned that a new seasonal adjustment method introduced this year made the non-EU figures less reliable on a month-to-month basis. Philip Shaw, the chief economist at Investec, said: "The reduction in the goods deficit is curious given what appears to be a global soft patch. Some of this appears to be due to oil and erratic items."

The ONS said its latest estimate of the trend was that the deficit was flat in recent months. The report showed that exports to the EU fell by 3.5 per cent, supporting evidence of stagnating demand in the eurozone.

This was more than offset by the 7.5 per cent increase in sales to the rest of the world. On the import side, volumes fell for a third consecutive month in March, pointing to a softening in UK domestic demand.

At a briefing to launch the Bank of England's Inflation Report, the Governor, Mervyn King, said he was forecasting an acceleration in export growth as the pound gradually fell.