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Is the weaker pound assisting exports?

The UK trade gap fell sharply in February with the Office for National Statistics reporting a non-EU trade gap of just under £4 billion as opposed analyst expectations of £5.35 billion. These figures compare to January's total of £5.631 billion and appear to show how a substantial weakening of the UK currency in international money markets has assisted exports from the UK.

It was also reported that non-EU exports increased by 13% in February while imports fell by 5.7% during the same period. While it is still very much early days in the stabilisation process of the UK economy there are hopes that possibly we have seen the worst, and the bottom is not far away. The cumulative impact of the significant change in trade figures would indicate that inflation is highly likely to fall further in the UK in the short term, although an expected increase in the longer term would support the move by the Bank of England to maintain interest rates at 0.5%.

Looking a little further ahead, the Bank of England has for some time been fearful of the impact of inflation rising as and when the recovery begins, although at this moment in time that appears to be some way down the line. It is very dangerous to use one set of economic figures in isolation and we await further figures for March and April to see if this apparent improvement in the health of the UK economy continued.

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