UK Trade Balance Improves Despite Pound Sterling's Strength

Fears that a strong British pound could be hampering UK export growth were eased on Tuesday the 9th of June with the release of the latest trade account data for the UK economy.

The ONS reported that the Trade Balance (Apr) showed a deficit at -8.56B, however this is a great deal better than the figure of -9.90B that was forecast.

The UK’s deficit on trade in goods and services was estimated to have been £1.2 billion in April 2015, compared with £3.1 billion in March 2015 – a marked improvement. 

The Trade Balance figures were supposed to be one of the highlights of the week for the pound sterling, however the currency hardly moved in response.

We have however learnt that fears of a strong pound hurting export activity may be over-blown.

Economic surveyors Markit reported at the start of the month that they were concerned by the impact sterling strength was having on manufacturing while the Bank of England confirmed in their latest inflation report that they are cooking a high pound exchange rate into their economic forecasts.

This is important as the implication here is that an interest rate rise at the Bank of England could be delayed if it meant keeping the GBP lower for longer.

We would however need to see further subsequent improvements in the Trade Balance data before the Bank of England changes course on their forecasts.

Beware, Speeches Ahead

Currency markets could react to impending speeches from Bank of England Governor Carney, Chancellor Osbourne and BoE member McCafferty.

“The Bank of England is comfortable with the current level of monetary policy but Carney and McCafferty are generally more hawkish so if they touch on monetary policy or the economy, it will most likely help the currency,” notes Kathy Lien at BK Asset Management.

It is believed that McCafferty is very close to voting for a rate hike but having just lowered their growth outlook last month, chances are the Bank of England will leave rates unchanged for the rest of the year. 

We believe any impact brought about by the speeches will ultimately prove short lived and we stick by the view that external drivers remain key to the pound at the present time.