Pound exchange rate buoyed by reduced trade deficit

The pound's worth has been propped up by the latest positive data concerning the UK's trade deficit and housing market.

Released this morning, data from the Office for National Statistics showed that the nation's deficit on trade shrunk towards the end of 2009.

In October, the deficit stood at £3.1 billion; by November this had been reduced to £2.9 billion.

In response to the strong data, the pound edged up to buy $1.616 at 11:00GMT on January 12th.

However, the deficit with EU countries widened slightly from £3.5 billion in October to £3.8 billion in November.

Accordingly, sterling remained weak against the euro, reaching a high of €1.114 at 11:00GMT.

Increased retail sales across the fourth quarter of 2009, reported in the latest survey from British Retail Consortium (BRC), could also be responsible for the rise in sterling's value.

Howard Archer, from financial analysts Global Insight, told Reuters: "Given that consumer spending accounts for some 65 percent of GDP, the strong December BRC survey provides a significant boost to hopes that the UK economy exited recession in the fourth quarter with significant expansion."

Retail sales rose by 4.2 per cent in December, which, according to BRC reports, was better than expected.