Brexit latest: Trade deficit narrows in December while manufacturing jumps

Exports of goods to non-EU countries jumped by 7.4 per cent while manufacturing and construction output also increased by more than expectations

The ONS said that exports of goods to non-EU countries increased by £1.1bn in December (Bloomberg)

The pound rose against the US dollar on Friday after data showed that the UK’s trade deficit in goods and services narrowed in December and industrial output rose more than expected.

Figures from the Office for National Statistics (ONS) showed that the deficit fell to £3.3bn in the final month of the year, helped by a sizeable increase in exports to countries outside the European Union.

Exports of goods to non-EU countries jumped £1.1bn - or 7.4 per cent - to £15.4bn.

Total goods exports grew 4.4 per cent, outstripping imports growth of 1.4 per cent.

For the final quarter of 2016, the trade deficit narrowed to £8.6bn, down considerably from the previous quarter's £14.1bn deficit.

Over the three months imports were up 10.4 per cent, while imports grew just 0.3 per cent.

The figures show net trade made a large contribution to GDP growth in the final quarter after being a drag in the previous three months.

The ONS report lifted sterling 0.1 per cent to above $1.25 as traders priced in a higher possibility of an earlier interest rate rise from the Bank of England.

The pound has fallen by 12 per cent since the UK in June last year voted to leave the EU and Friday’s figures suggest sterling’s slump might be beginning to help exporters.

"This suggests that some support may be starting to come from the weakened pound," said Howard Archer, economist at IHS Global Insight.

But other economists were still sceptical of a near term benefit.

"We continue to expect the boost to net trade from sterling’s depreciation to be modest, given that the threat of trade barriers will dissuade many firms from investing to export more, and the lack of domestically-produced substitutes for the goods that the UK currently imports," said Samuel Tombs of Pantheon Macroeconomics.

Meanwhile, industrial production grew by 1.1 per cent in December, while the manufacturing component increased by 2.1 per cent - a significantly better performance than the consensus of City analysts.

Construction also rose by 1.8 per cent in December, also beating expectations.

The overall economy is estimated by the ONS to have grown by 0.6 per cent in the final quarter of 2016, unchanged from the previous quarter.

Since the Brexit vote in June the economy has been powered by consumer spending and services.

But Scott Bowman, UK economist at Capital Economics, said the latest data hinted that the economy might show "more balanced growth" in 2017, with manufacturing growth possibly outstripping service growth over the 12 months.

The Bank of England last week forecast that the economy would grow by 2 per cent this year, up from its previous 1.4 per cent forecast.

The Bank has said that the next move in interest rates could be "in either direction".