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Concerns for economic recovery as deficit hits record high

Concerns for economic recovery as deficit hits record high

THE pound hit a 15-month low against the euro yesterday as concerns over Britain's economic recovery intensified after its deficit with the rest of the world ballooned to a record high.

Official figures showed the UK's current account deficit - the difference between money flowing in and out of the country through traded goods and investment - swelled to & pound; 32.7billion, or 7 per cent of GDP, in the fourth quarter. That is its highest proportion since records began in 1955.

This overshadowed data showing Britain's economy grew faster than expected over the final three months of 2015 up 0.6 per cent from the previous 0.5 per cent estimate. Sterling traded about 0.5 per cent lower against the euro at 1262 euros.

Economists noted an increasing reliance on consumer spending and service industries while manufacturing and construction lagged behind. But the current account deficit, higher than the & pound; 21billion expected, highlighted growing concerns over the UK's dependence on funding from foreign cash flows, which Bank of England Governor Mark Carney referred to recently as the "kindness of strangers".

Concerns for economic recovery as deficit hits record high

Investec economist Chris Hare said: "This data is ugly. Policymakers might worry about how large this imbalance has become. The yawning current account deficit indicates a continued lack of rebalancing in the economy. "

While household consumption was the main driver of economic growth in the fourth quarter, official figures showed disposable income fell by 0.6 per cent from the previous three months.

Kay Neufeld, of the Centre for Economics and Business Research, said: "Households are especially worried about a slowdown in workplace business activity and consequently their job security. If they cut back on consumption in a significant way this would damage prospects for GDP growth in the UK.

"Excessive reliance on consumer spending is also risky. The large persistent current account deficit poses a threat to the UK economy and increases the possibility of a substantial currency devaluation. "

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01 April 2016, 0:40