UK trade balance deteriorated in May, but less than expected

The latest official report from the UK's Office for National Statistics (ONS) showed that UK's trade deficit deteriorated further in May, but less-than-expected. ONS report showed that UK trade balance in May fell to a seasonally adjusted -9.88 billion pounds ($12.82 billion), from -9.41 billion pounds in the preceding month (revised up from -10.53 billion pounds). Analysts had expected trade balance to fall to -10.65 billion.

UK's trade deficit with non-EU countries expanded to GBP2.560 billion in May. Including services, the UK's trade deficit widened to 2.3 billion pounds from 2 billion pounds, the ONS said. The country’s exports came in at 2.26 billion pounds lower than its imports in May.

Heavy downward revisions to the previous month’s deficit suggest some improvement in Britain’s trade position was underway before last month’s vote to leave the European Union. Widening trade deficit highlighted policy makers’ challenge in boosting trade following the vote to leave the European Union.

Since the referendum, sterling has fallen more than 10 percent on a trade-weighted basis. As the cost of imports surges due to falling exchange rate, it is likely to lead to the trade deficit widening over the next few months. If a cheaper domestic cost base allows British firms to find new markets abroad, trade deficit may narrow in the longer term.