UK's trade deficit narrows

Britain's trade deficit with the rest of the world narrowed in the three months to September, offering a boost to third-quarter growth.

The Office for National Statistics said Britain’s total trade deficit narrowed to £11.0bn in the third quarter from £12.7bn in the April-June period, which was the highest since 2013.

However the trade deficit in goods heavily overshot economists’ expectations in September alone, driven in part by a record deficit with the EU. The deficit in goods alone narrowed to £33.2bn in the third quarter, but for September it widened to £12.7bn.

Britain’s currency dropped more than 10 per cent against the dollar and the euro after June’s referendum, hitting a 31-year low against the dollar, and lost further ground in October.

Many manufacturers have reported a jump in foreign demand after the currency fell, but it can take time for this to show up in trade data.

Higher costs for imports are often felt first when a country’s currency falls, causing the trade deficit to widen temporarily before narrowing.

“So far there is little evidence in the data of the lower pound feeding through into trade volume or prices,” ONS statistician Hannah Finselbach said.

The Bank of England said last week it expected the fall in sterling to help narrow Britain’s big current account deficit, which hit a record high in 2015.