UK trade deficit narrows sharply

The goods trade deficit shrank to £5.45bn from £7.04bn in February, excluding exceptional items.

"An improvement in the balance of trade with non-EU countries" was a major cause, said BNP Paribas' Alan Clarke.

The deficit with non-EU countries was lower than expected, having fallen to £2.60bn from £3.29bn in February.

While the goods deficit increased in January and February, March's figure is more in line with figures seen for the first half of 2005.

"Better news on the export side. Imports are softer, perhaps reflecting a bit of weakness in the retail sector," summed up HBOS Treasury Services economist Mark Miller.

"It should augur pretty well for first quarter [economic] growth."

VAT fraud

But UK trade growth is not as healthy as it might first appear since February's figures were upped to include newly available oil trade figures and 'missing trader fraud', observed some analysts.

Missing trader fraud entails UK firms importing VAT free items and then reselling them in the UK with VAT added, while not paying VAT to HM Revenue & Customs.

"On the face of it, trade is growing very strongly, with exports and imports both rising by around 8% during the first quarter of the year," explained Deutsche Bank's George Buckley.

"However, some of this is the result of missing trader VAT fraud.

"Stripping this effect out, imports and exports are up by 4.7% and 6% quarter on quarter."

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