HOPES of a recovery in the global economy have been fuelled as figures showed Britain's trade deficit with the rest of the world narrowed in January.

A rise in exports to the US helped cut the goods deficit by £500m to £2.6bn, according to the Office for National Statistics (ONS).

The improved performance came despite the gap with EU countries widening to its largest level since April 1999.

With Britain's trade in services showing a surplus of £1bn, the overall trade deficit fell back to £1.6bn from £2.1bn.

City experts were expecting little change on December's trade gap and said the figures pointed to better times ahead for UK manufacturers.

John Butler, economist at HSBC, said: "This provides further confirmation that the global recovery is under way."

A strong increase in car exports was registered in January. But the US and Canada were the only two countries among the G7 to order more British goods.

Exports to the Netherlands, Switzerland, Spain, Australia, Hong Kong and the Republic of Ireland all fell.

Imports of consumer goods rose strongly during the month, up 4.5 per cent, while imports of semi-manufactured goods were weaker.

Philip Shaw, chief economist at Investec, said the widening deficit with EU countries showed the Eurozone was continuing to struggle. He said: "It is wait and see, but the figures are certainly encouraging for the effect of the world recovery on the domestic economy."

The ONS said Britain's goods deficit with the EU widened to £943m in January, compared with £740m the month before.

For the three months ending January the deficit with the EU was £2.4bn, compared with £1.3bn in the previous quarter.

Separate figures from the ONS yesterday showed British manufacturers enjoyed another slight increase in the price of their products last month.

Factory gate prices rose 0.1 per cent in February as the cost of food and transport equipment rose.

The increase follows successive rises in December and January, but the ONS showed companies' margins still remain under pressure.

The price of manufacturers' raw materials climbed by 0.2 per cent last month, reflecting higher crude oil costs. Figures showing the levels of output in the domestic manufacturing sector in January are due to be published by the ONS today