The UK trade balance improved moving to a smaller deficit position in July as exports rebounded strongly from a very weak June, gaining back what they had lost. But imports fell, building on losses over the last four months.

Year-over-year trends show that exports are now losing momentum faster than imports. Imports appear to have stabilized to some extent on their yr/yr comparison.

Exports were helped in June by a surge of petroleum exports to Europe. The deficit in goods trade with the European Union (about 49% of British exports) narrowed to 4.27 billion pounds in July from 4.99 billion pounds in June. The trade gap with non-EU nations also fell to 2.88 billion pounds from 5.08 billion pounds, as exports to those countries rose to a record. However, sterling has begun to strengthen and that casts a shadow over the ability of UK exports to maintain this momentum.

UK economic data have been mercurial recently with some housing data showing price increases and the recent MFG and services PMI surveys showing a move higher. But the BOE still seems very worried about the economy. Money supply continues to contract.

The trade figures show a withering export trend and steady weakens in imports. The ongoing import weakness is a signal for poor domestic demand prospects.