Recovery narrows UK trade gap

SIGNS of recovery in the global economy are beginning to help British exporters, judging from official figures that showed the trade gap narrowed in January.

The monthly trade deficit fell from December's £3.1bn to a lower-than-expected £2.6bn and the combined deficit in goods and services trade narrowed from £2bn to £1.5bn.

Last year, the deficit in Britain's trade in goods ballooned to a record £33.6bn from £30bn the previous year as exports were hit by the slump in the American economy and the sharp slowdown in European growth.

British exporters also suffered from the continued strength of the pound. Healthy consumer demand at home, which sucked in foreign imports, also contributed to the deterioration of the trade balance last year. The soaring deficit is partly offset by a continuing surplus on services trade and steady flow of income from overseas investments.

The world economy is still weak, but there are signs the worst may be over in the United States, where companies have begun to rebuild stocks, and Europe. This should eventually lead to a further improvement in British manufacturers' export performance. Separately, figures for raw materials costs showed that inflationary pressures are still subdued. Compared with a year ago, input prices were 7.2% lower in February, against 6.2% in January.

The pound remained steady around its opening level of $1.42.