British trade deficit shrinks as exports hit record

LONDON: Britain's trade deficit narrowed by more than expected in January as exports hit a record high, official data showed Wednesday, sparking hopes that the economy could rebound in the first quarter.

The deficit -- the difference between goods exported and imported -- shrank to £7.1 billion (8.3 billion euros, $11.5 billion) in January, the Office for National Statistics (ONS) said in a statement.

That was the lowest level since February 2010 and beat forecasts for a deficit of £8.6 billion, according to analysts polled by Dow Jones Newswires.

The January reading compared with an upwardly-revised deficit of £9.7 billion in December, which was the highest shortfall for the month on record.

Record exports were driven partly by an increase in sales of oil, food, drink and tobacco, an ONS spokesman said.

Exports jumped 5.4 percent in January to hit £25.1 billion in January, reaching the highest level since records began in 1980. The ONS added that imports fell 4.0 percent to £32.2 billion.

British Prime Minister David Cameron hailed the data, arguing that the economy was rebalancing itself towards exports.

"This is exactly the sort of rebalancing our economy needs," Cameron told lawmakers at his weekly question-and-answer session in parliament on Wednesday.

Analysts added that improving trade could have a "positive" impact on economic output in the first quarter, after a steep slump in the final three months of 2010.

Gross domestic product (GDP) contracted 0.6 percent in the three months to December, which was the largest drop since the second quarter of 2009, as harsh wintry weather hampered prospects of a swift recovery.

"Net trade should provide a positive contribution to quarterly GDP growth in the first quarter," said Capital Economics analyst Vicky Redwood.

"And looking further ahead, it is encouraging that survey measures of export orders have continued to strengthen.

"But for now, the big picture still seems to be that net trade is providing only modest support to the overall economic recovery."

However, IHS Global Insight economist Howard Archer argued that exports had rebounded sharply in January partly because of snow-related disruptions in December.

"It is evident that the trade situation was significantly distorted for the worse by December's severe weather affecting exports more than imports, with the result that there was a positive corrective effect in January," he noted.