Overview of the week commencing 12 December
Graham Cross, CEO
The week beginning 5 December brought a much narrower UK trade deficit and an extended schedule for the ECB’s asset purchase programme. Both have a good-news, bad-news feel to them.
The UK deficit in goods and services narrowed on last month’s £5.8billion to a more palatable £2.0billion. A ‘better’ trade balance reflects a £2.1billion increase in exports. Sterling was, on average, 5.1percent lower compared with the September average and that is likely a contributing factor. It is also pleasing to see the volume of goods exported to non-EU countries surge. The deficit in goods trade with non EU countries fell from £5.3billion in September to around £1.6billion in October. Increased exports to the US, Switzerland and, to a more limited extent, China account for much of that improvement. Increased exports are undoubted good news.
Meanwhile a £1.8billion decrease in the value of imported goods is a mixed blessing. On the one hand, falling imports have narrowed the trade deficit. On the other hand, falling imports might reflect some moderation in domestic demand which in turn might be indicative of a likely slowdown for the UK economy. Meanwhile higher import costs (of around 9.4percent year-on-year) will contribute to wider price rises as CPI inflation heads back toward, and then in excess of, the 2.0percent target rate.
The week ahead sees the Office for National Statistics (ONS) provide us with an inflation update and the Federal Reserve will probably increase the main policy rate of interest by 0.25 percent.