Business leaders in Birmingham yesterday welcomed official figures which showed that the UK's trade deficit narrowed sharply in March.

Exports outstripped imports, causing the deficit to fall from a revised £7.04 billion in February to £5.45 billion, according to the Office of National Statistics.

James Cooper, policy adviser at Birmingham Chamber of Commerce and Industry, said: "These represent more encouraging results from the UK economy and show a good performance by UK exporters despite the difficulties currently posed by the strong pound.

"A large trade deficit, currently being experienced in the US, has to be financed either by taxpayers or by increased borrowing from abroad, which is undesirable in the long run.

"The results auger well for continuing stable growth in the UK economy."

But a note of caution over the future of UK trade was sounded by Peter Mathews, president of the Midlands World Trade Forum.

He said: "Britain is a trading nation and needs to export its goods in order to survive.

"Over the course of the past few decades, the UK has depended on its North Sea gas reserves to fund imports. With these reserves dwindling, UK goods and services will need to continue to be seen as being competitive abroad to compensate for this."

One setback in the ONS figures was February's deficit being revised up to a new record.

And, the ONS also noted, the latest estimate of the trend was that the trade deficit in goods and in goods and services had widened in recent months.

The ONS blamed the revision on late collection of figures on trade in oil and revised fraud estimates.

But the underlying goods gap, which excludes oil and erratic items, also narrowed in March to £5.53 billion from a revised record £6.6 billion in February.

"Better news on the exports side. Imports are softer perhaps reflecting a bit of a weakness in the retail sector," said Mark Miller, economist at HBOS Treasury Services. "It should augur pretty well for Q1 GDP growth."

The goods trade gap with non-EU countries was also narrower than expected at £2.6 billion, down from £3.2 billion in February and against expectations for a deficit of £3.4 billion.

Commenting on the trade figures, shadow Trade and Industry Secretary Alan Duncan said: "Gordon Brown's higher taxes and ever more regulation are strangling the competitiveness of British business."

Liberal Democrat trade and industry spokesman Edward Davey pointed to evidence of a dramatic growth in VAT fraud, which he said significantly distorted trade data and masked the UK's worsening economic performance.

Mr Davey said: "Export VAT fraud is not only costing the Government billions, it is covering up the cost of the Chancellor's failing economic policies.

"City analysts estimate the Treasury lost over £10 billion last year, as goods are imported and exported simply to avoid VAT."