By Jonathan Davies

The UK saw a sharp drop in its trade deficit in January, according to the Office for National Statistics (ONS).

The trade deficit was £0.6bn in January, the ONS, down from £2.1bn in December.

However, the fall was as a result of a £2.1bn drop in imports, rather than a significant increase in exports, which is the desired method of reducing the trade deficit.

The ONS said that the £0.6bn figure was reflected by a £8.4bn deficit on goods being offset by £7.8bn surplus on services.

The sharp falls continue when looking at quarterly periods. The trade deficit for the three months to January was £4.4bn, almost half of the figure reported in the previous three months. The ONS said the latest quarterly deficit is the smallest since October 2000.

Stephen Ibbotson, Director of Business at chartered accountants ICAEW, said: “Although it is good that the trade deficit has narrowed, we cannot get complacent about progress. The headline figure is a reflection of a £2.5bn fall in imports such as oil, and the sharp drop does not hide the fact that we are still not exporting enough, and the recent fall in the euro is only going to make it harder.

“The government has a noble aspiration to reach £1tn of exports by 2020, but we’re not making sufficient progress. If we are to make trading overseas a viable option for more businesses, the government needs to do more. Providing increased incentives to reduce set-up costs for new exporters would be a good start.”