BRITAIN'S trade balance was better than expected December as a result of the first surplus with the rest of the EU for more than two years. This followed a sharp decline in imports from Europe the deficit with the rest of the world increased in January.

The trade figures came as the European Commission published figures showing that the inflation rate in January was 3.2 per cent, compared with the figure of 2.8 per cent on the government's preferred measure of RPIX the retail price index minus mortgage interest.

The overall trade deficit of £557 million sterling in December surprised the City which had been anticipating a deficit of about £900 million. The surplus with the EU was the first since August 1993, an improvement mainly attributable to a 2.6 per cent fall in imports from other EU members. Exports fell 0.4 per cent.

The 3 per cent fall in imports of semi manufactured goods suggests that the underlying trade position was flattered by lower stock building, as manufacturers strove to, shed excess inventories. The 9 per cent fall in manufacturing investment in the final quarter of 1995 was reflected in a drop of over 4 per cent in capital goods imports. The deficit with countries outside the EU, for which information is available earlier, worsened by almost £300 million to £890 million in January.

Over the year as a whole, the trade gap was £11.6 billion, compared with £10.8 billion in 1994. The balance was helped by an oil trade surplus of £4.3 billion, the highest for 10 years.