Here is a Guardian Headline
Weak pound helps exports.
Fall in sterling slashes UK trade deficit
On reading we see that they are mainly talking about our February trade with Non-EU countries.
Where our deficit fell by £1.6 … however our deficit with EU countries grew by £1.1 billion,
While any decrease in our overall balance of trade is important, we should never be trying to put an over optimistic spin on events.
The month to month figures always have a lot of distortion as they ignore what is happening to Inventories and other short term effects. By short term effects I refer to Oil prices averaging $39 during February while they are currently up to $55. While our imports of Oil are not yet very significant, they are growing and will continue to do so.
When doing earlier analysis, I pondered over the elasticity of our trade with Europe to price (devaluation of Sterling). I suspected that it was relatively inelastic and the figures above possibly confirm that suspicion. As the EU is our main trading partner, this should give us some cause for concern.
It is the first clear sign that current economic policy (quantitative easing and low interest rates) may not work. The policies are primarily aimed at creating a devaluation of Sterling to improve trading balance. The widening gap in our trade with the EU suggests that they will have the financial power to underpin Sterling at a level they can sustain.
While the article was not a government announcement, we can be fairly certain that the headlines were politically inspired.
Let's hope Alistair Darling's budget is not just another load of fudge … it is bad enough with the economy under stress it would be disastrous if it got diabetes as well!