UK current account deficit balloons, GDP revised up

[LONDON] Britain's current account deficit widened much more than expected to hit a record high, highlighting one of the economy's weak spots that is coming under sharper focus ahead of the European Union membership referendum.

The Office for National Statistics said on Thursday that the deficit in the current account widened to 32.7 billion pounds in the fourth quarter of 2015, shooting up to the equivalent to 7.0 per cent of gross domestic product.

The deficit had stood at 4.3 pct of GDP in the third quarter.

Economists taking part in a Reuters poll had expected the shortfall to widen to 21.1 billion pounds in the October-December period.

For 2015 as a whole, the current account deficit stood at 96.2 billion pounds or 5.2 per cent of GDP, also the biggest since records began in 1948.

The Bank of England has said it will watch for signs that the EU membership referendum, due to take place on June 23, might make it harder for the country to finance the shortfall in its balance of payments.

The value of sterling has weakened sharply since the start of year on concerns about the outcome of the EU referendum and BoE Governor Mark Carney has said a vote to leave the bloc would test the "kindness of strangers." Britain's current account deficit reflects not only the shortfall in its trade balance but also the higher outflows of dividends, bond payments and other returns to investors outside the countries compared with inflows the other way.

That imbalance has grown as Britain's economy has expanded more strongly than many other countries over the past three years.

The ONS said the primary income deficit component of the current account showed a fall in income from British direct investments abroad while more money flowed out the other way to foreign investors in Britain.

The ONS said that Britain's economy grew 0.6 per cent in the fourth quarter compared with the previous three months, higher than its previous estimate of 0.5 per cent, thanks mostly to stronger growth in the country's dominant services sector.

GDP was 2.1 per cent bigger than in the fourth quarter of 2014, stronger growth than the previous estimate of 1.9 per cent.

Economists taking part in a Reuters poll had expected no change to the previous ONS estimates for gross domestic product.

In 2015 as a whole, Britain's economy grew by 2.3 per cent, higher than a previous estimate of 2.2 per cent.

After two years of strong growth, Britain's economy began to slow in late 2015 although it remains one of the leaders among the world's rich countries.

Consumer demand remains the main driver of growth and Thursday's data showed spending by households grew by 0.6 per cent in the fourth quarter, unchanged from the previous three months.

However, real household disposable income fell 0.6 per cent as rises in incomes failed to keep up with prices.

Output in Britain's service sector - which makes up more than three quarters of GDP - rose by 0.2 per cent in January from December, slowing a touch from the previous month.


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