The goods trade deficit narrowed more than expected in July, data showed on Tuesday, driven by record exports to countries outside the European Union and an improvement in the trade balance of oil and diamonds.

The Office for National Statistics said the goods trade deficit shrank to 7.149 billion pounds in July from 10.068 billion pounds in June, beating economists' forecasts for a gap of 9.0 billion pounds.

That was the narrowest deficit since February 2011, helped by the biggest rise in total goods exports since records began in 1998.

The goods trade deficit with non-EU countries also narrowed to 2.877 billion pounds in July from 5.077 billion pounds in June and against forecasts for a gap of 4.5 billion pounds. That was the smallest gap since October 2005.

The overall trade deficit narrowed to 1.517 billion pounds, down from 4.333 billion pounds in June.

Manufacturing output rebounded strongly from the hit to production from the extra holiday to mark the Queen's 60 years on the throne in June, raising hopes the economy could move out of recession after three quarters of contraction.

However, the euro zone turmoil and signs of a slowdown in major emerging markets have dented hopes that a rise in export demand can drive growth in an economy hurt by government austerity measures aimed at erasing a huge budget deficit.

(Reporting by Olesya Dmitacova and Matt Falloon)