LONDON Record exports helped narrow Britain's trade deficit at its fastest pace since records began in October, but euro zone turmoil and weak demand at home continue to pose the biggest threat to an economic recovery.
Coupled with benign factory gate price data, Friday's figures did not alter expectations the Bank of England will have to inject more stimulus to support growth as the euro zone debt crisis threatens to help push the UK back into recession.
Britain's goods trade deficit narrowed to 7.557 billion pounds in October from a record 10.175 billion pounds in September, the Office for National Statistics said. It was the biggest monthly fall in the deficit since monthly records began in 1998 and was smaller than economists' forecasts for a 9.4 billion pound gap.
Analysts noted that monthly trade data are volatile and said the figures did not alter their view that Britain's economy is slowing sharply and could even contract for one or two quarters as the global economy falters.
"This may be short-lived as the UK's key export markets struggle, with the euro zone staggering on without conclusive political action," said Kah Chye Tan, head of trade and working capital at Barclays Corporate.
"The U.S. and other developed economies are beginning to feel the knock-on effects."
EU leaders agreed overnight to tighten their budget rules, but markets remain unconvinced that politicians are making enough progress to stem the debt crisis.
The Bank of England on Thursday voted to keep on with the 75 billion pound quantitative easing programme it relaunched in October, but most analysts expect it will inject more stimulus in February when that runs out, to shore up the economy.
Recent purchasing managers' and business surveys have indicated that British manufacturers are suffering a sharp drop in export demand, but Friday's data showed foreign demand held up well in October.
The ONS said exports rose by 8.7 percent on the month to a record 26.5 billion pounds. That was the biggest monthly rise since March 2006 and reflected a sharp jump in exports of chemicals, capital goods, and consumer goods.
Sharp falls in imports of chemicals and consumer goods pushed imports down by 1.5 percent, possibly reflecting weaker consumer demand as Britons feel the squeeze from soft wage growth, high inflation and a clampdown on public spending.
The goods trade gap with non-EU countries narrowed to 4.554 billion pounds in October from 5.712 billion pounds in September. Exports to non-European Union countries rose by 11.5 percent on the month, almost double the increase in exports to the EU -- Britain's biggest trading partner.
Overall, the figures provide some support for the government's hope that a manufacturing recovery will help rebalance Britain's economy away from its reliance on consumer demand and financial services.
Analysts were cautious but said the data suggested net trade would make a decent contribution to overall economic growth in the fourth quarter.
"It's as much an import weakness story as one of export strength," said Ross Walker, economist at RBS.
PRICE PRESSURES EASING
Separate figures on Friday showed factory gate inflation eased as expected in November as firms' input costs slowed, supporting the BoE's expectation for headline consumer price inflation to fall back sharply in the coming months.
The ONS said producer output price inflation slowed to 5.4 percent on the year in November from 5.7 percent in October, in line with forecasts.
Annual input price inflation also fell back to 13.4 percent in November, its lowest since December 2010, and down from 14.3 percent in October.
The BoE expects CPI to fall below its 2 percent target in about 18 months from the current 5 percent.
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