March 12, 2015 / 9:35 AM / 2 years ago

UK trade gap narrows sharply, helped by exports, oil prices

The largest container ship in world, CSCL Globe, docks during its maiden voyage, at the port of Felixstowe in south east England, January 7, 2015.Toby Melville

LONDON (Reuters) - Britain's trade deficit fell to its narrowest in over 14 years in the three months to January, helped by rising exports and cheaper oil, another sign of improvement in one of the recovering economy's weak spots.

In January alone, the deficit in trade of goods and services shrank to 616 million pounds, less than a third of its size in December, official data showed.

The three-month reading of the deficit -- a less volatile measure -- was its smallest since October 2000, the Office for National Statistics said on Thursday.

"Trade has made a strong start to 2015," Simon Wells, an economist with HSBC, said. "Although the headline trade deficit has clearly been flattered by the fall in the oil price, the underlying volumes picture was favourable in January."

The pound rose against the dollar after the data, having hit a 20-month low overnight as investors bet on a U.S. interest rate hike coming soon.

The strong recovery of the U.S. economy and signs that the battered euro zone might be on the mend are helping the outlook for Britain's exporters.

Exports of goods in the three months to January were up nearly 6 percent compared with the previous three months -- including an increase in sales to the European Union -- while imports rose 2 percent.

Exports of services in January alone hit a record high, the ONS said.

Britain has relied heavily on domestic demand for its economic recovery since the middle of 2013.

But there have been signs of improvement recently and Thursday's figures will give fresh hope to a government that it is making progress towards weaning the economy off its reliance on domestic consumers.

Trade gave Britain's overall economic growth a boost in the last quarter of 2014 and economists said January's data suggested it could help in the first quarter of 2015 too.

However, exporters could find it hard to sell to clients in the euro zone after the European Central Bank launched its massive bond-buying programme this month, causing the pound to strengthen to a seven-year high against the euro.

The deficit in goods trade alone improved sharply in January, narrowing to 8.41 billion pounds, its smallest since March of last year, the ONS said. Economists had forecast a gap of 9.7 billion pounds in the goods trade balance.

Writing by William Schomberg, additional reporting by Andy Bruce; Editing by Catherine Evans

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