The trade balance is the difference between exports and imports. It may measure trade in goods only (sometimes called merchandise trade), or trade in both goods and services.

Services are more difficult to measure, and so the balance of trade in goods and services is less reliable, and more likely to be subject to revision.

In practice, therefore, figures for trade in goods tend to be given greater prominence, as these are among the most reliable and rapidly available figures on external trade flows.

The figures collected record UK trade using the method known as “Overseas Trade Statistics” (OTS). This records the value of trade at the point of customs clearance.

• For exports, the valuation is on a free on board (fob) basis, i.e. the cost of goods to the purchaser abroad.
• The valuation of imports is on a cost, insurance and freight (c.i.f.) basis, which includes all the expenses of moving the goods to the point of entry into the UK but excludes any duty or tax chargeable in the UK.

The UK’s trade statistics are recorded in two ways:

• by value (which gives the balance of payments position)
• by volume (which indicates “real changes” in the physical quantity of goods traded)

While values are recorded in monetary terms (usually £ millions), volumes are recorded as index numbers (with the current series calculated from a base of 100 in 2005).

Index numbers allow comparisons of volume trends to be made across different products, for example, comparing motor vehicles with fruit and vegetables.

Trends in volumes can differ from trends in values by a significant degree. For example, the value of goods exported by the UK rose from £167.2 billion in 1996 to £243.6 billion in 2006, an increase of some 46%.

In volume terms, however, the increase was even greater (up by 57% over the same period), implying that the average sterling price of goods had fallen. Much of this is attributable to exchange rate movements.

In the following two years, however, the situation was reversed with exports in value terms up by 3% but in volume terms down by 10%.

Source: ONS