Data this morning has shown that the UK trade deficit narrowed substantially in February following the disappointment of January’s figure.
A deficit of £6.2 billion was recorded for the month, some way from the median forecasts, which had called for a more moderate narrowing of the deficit to £7.3 billion. The last time the monthly deficit was at this level was in August 2009.The data should raise expectations that the UK can bring its debts under control. It also reveals the positive impact that the weak UK currency has had in lifting demand for British exports.
Duncan Higgins, senior analyst at Caxton FX says, “Sterling’s lowly rate is finally beginning to pay dividends. Its broad undervaluation in recent months has increased the competitiveness of UK exports, supporting a slight rebalancing of the deficit.”
“Certainly the data is supportive, and marks a positive step in reducing overall debt, but the road ahead will remain uneven. The incoming government, be it a single party or a coalition, needs to detail a precise strategy for financing the huge debt burden that lies on the UK economy. A steady appreciation of the pound will have to wait until the market is satisfied that such a plan has been clearly outlined,” continued Higgins.
Improved sentiment in the wake of the figures has given sterling a slight boost, bringing it off this morning’s lows. The pound is now trading comfortably back above €1.13, though remains some way from its seven-week high hit at the end of last week. It is also approaching 1.54 against the dollar, up fractionally on the day.
