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Last Updated: Tuesday, 13 March 2007, 10:45 GMT
Import fall aids UK trade balance
Toyota factory in Derbyshire
Analysts say exports have held up well
The UK's trade deficit narrowed sharply in January due to falling imports from much of Europe, but exports were flat.

The shortfall in goods and services trade shrank to 3.8bn from 4.5bn in December, provisional data from the Office for National Statistics showed.

But on a three-month basis, the deficit widened to 12.6bn from 12.2bn.

In January, the deficit in goods sold narrowed to 6.2bn from 6.9bn. Total imports fell to 24.8bn while exports remained flat at 18.6bn.

Domestic demand

Analysts said the trade figures remained volatile on a month-by-month basis due to the large amount of trade associated with VAT or so-called carousel fraud.

While January's overall deficit was the lowest in 15 months, December had been the highest in six months.

Exports rose significantly to Germany in January, reflecting an upturn in the German economy, but the value of goods sold to the US and France declined.

Imports from the US, Germany and China all rose but trade from France and Russia fell.

Analysts said it was encouraging that exports were holding up given the strength of sterling against the dollar and other major currencies.

On the other hand, they warned that consumer demand in the UK may have been affected by recent interest rate rises.

"The main factor behind the improvement in the trade balance in January was softer goods imports, which could be an indication of at least a temporary easing back in domestic demand," Howard Archer, chief economist at Global Insight, said.

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