INSTANT VIEW - UK July trade gap narrows less than expected

LONDON (Reuters) - Britain's goods trade deficit with the rest of the world narrowed less than expected in July as the oil deficit rose to its widest in a year.

KEY POINTS

- Smallest deficit for global trade ex oil and erratics since March 2006

- Biggest oil deficit since July 2008

- Goods exports rose by 5 pct on the month, the fastest pace since Jan 2008

ANALYST COMMENTS

GEORGE BUCKLEY, DEUTSCHE BANK

"The main reason the deficit didn't narrow was due to oil & erratics - both of which deteriorated. However encouragingly ex-oil exports rose by 4.5 percent m/m in July, the second month in a row that values have risen. An improving global environment/lower sterling are the likely causes. We expect the gap to continue to narrow particularly if consumer spending fails to recover quickly."

HOWARD ARCHER, IHS GLOBAL INSIGHT

"The trade data showed underlying improvement in July, thereby providing support to mounting hopes and expectations that the economy will return to growth in the third quarter.

"Exports of traded goods excluding oil rose for a second successive month and at an increased rate of 4.5 percent month-on-month in July, thereby suggesting that exporters are increasingly benefiting from the competitive pound and slowing contraction or even a return to growth in key overseas markets.

"Meanwhile, UK imports of traded goods excluding oil rose by 2.7 percent month-on-month in July. This suggests that domestic demand may be starting to expand modestly -- especially as imports may be being held down to some extent by import substitution resulting from the overall marked depreciation of the pound pushing up the price of some imported goods.

"Hopefully, exports will see further improvement over the coming months. The sharp overall depreciation of sterling has boosted the competitiveness of U.K. exporters, while there are hopeful signs that domestic demand is starting to pick up in some key overseas markets, including the U.S. and Eurozone."

ROSS WALKER, RBS

"The underlying trend is still one of a very gradual narrowing in the external deficit.

"There are signs of underlying improvement and the fact that both exports and imports are picking up is indicative of the global recovery beginning to gain a bit of traction."

PHILIP SHAW, INVESTEC

"A little bit disappointing. In so far as the core numbers are more important, the ex-oil erratics is down on the month. Imports are falling more quickly than exports implying some sort of rebalancing is in process. There is some comfort to be taken from these figures.