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LONDON, July 9 (Reuters) - Britain's goods trade deficit with the rest of the world narrowed more than expected and to a three-year low in May as imports, particularly from outside Europe fell, official data showed on Thursday.
The trade picture was also flattered by the oil balance returning to surplus for the first time since September, the Office for National Statistics said.
Britain's global goods trade deficit narrowed to 6.263 billion pounds in May from 7.137 billion in April, much lower than the 6.75 billion pound gap forecast by analysts and the smallest deficit since June 2006.
The decline was driven by a drop in imports of more than 1 billion pounds on the month while exports only edged lower.
"The improvement is coming from a contraction in imports rather than higher exports," said David Page, economist at Investec. "They are showing consumers in distress rather than a strong export picture."
Policymakers have been hoping the pound's relative weakness over the last two years will help rebalance the economy, giving exporters a competitive edge and making imports more expensive.
"Net trade we expect to make a positive contribution to UK growth and these numbers support that," said Ross Walker, economist at RBS.
The ONS said the fall in May's deficit was mainly driven by lower imports from non-EU countries, with declines in fuels, consumer goods,chemicals and capital goods.
The goods trade gap with non-EU countries narrowed to 3.264 billion from 4.116 billion, also below forecast and the narrowest since April 2007.
The oil balance returned to surplus for the first time since September at 188 million pounds -- its highest since December 2004. The ONS said that may have been partly the result of UK refineries running down stocks due to closure for maintenance in April and May.
Britain's total trade deficit, which includes goods and services, narrowed to 2.168 billion pounds in May, the smallest since December. (Editing by Mike Peacock)