UK current account deficit fails to narrow as expected in Q1

Britain’s vast current account deficit failed to narrow as expected in the first three months of this year and remained close to an all-time high, official data showed on Thursday, suggesting the country’s overseas financing needs remained hefty ahead of last week’s vote to quit the European Union.

The Office for National Statistics left its earlier estimate of first-quarter growth unchanged, in a picture that shows the economy heavily reliant on household spending and services for growth, while foreign trade, investment and manufacturing all slowed the expansion.

Overall, the economy grew by 0.4 percent in the first three months of 2016, in line with forecasts, and was 2.0 percent larger than a year earlier.

But these growth figures are likely to be viewed as moot by financial markets after Britain’s decision to leave the EU, which sent the currency tumbling and raised fears the country will fall into recession or suffer years of weak growth.

Confidence among British consumers fell sharply in the days after the country decided to leave the European Union, according to a survey published on Thursday which gave a first glimpse of how the shock referendum result has affected households.

The YouGov/CEBR Consumer Confidence Index, which measures people’s economic sentiment on a daily basis, slumped to its lowest level since May 2013, when Britain’s economy was just starting to emerge from its post-financial crisis sluggishness.

Concerns about the current account deficit are unlikely to be dimmed by developments in the three months to March.

The current account deficit narrowed to 32.593 billion pounds from an upwardly revised 33.963 billion pounds in the last three months of last year.

As a percentage of GDP, the first quarter deficit was 6.9 percent, only just off a new record of 7.2 percent in the fourth quarter, which was the highest since three-monthly records started in 1955.

For 2015 as a whole, the deficit was revised up to 5.4 percent of GDP, the highest for a full year since annual records dating back to 1948.

Economists polled by Reuters had forecast the first-quarter deficit would narrow to 27.1 billion pounds.

Bank of England Governor Mark Carney said before the EU vote that leaving the bloc would test the “kindness of strangers” who cover Britain’s balance of payments shortfall, and is due to give a speech in London later on Thursday.

Sterling fell to its lowest against the dollar since 1985 after the vote – something that may help narrow the deficit as it makes British exports cheaper and increases the value of foreign currency returns from Britain’s overseas investments.

Last month the central bank forecast Britain’s economy would grow 2.0 percent this year and 2.3 percent in 2017 if it voted to stay in the EU, but warned of a sharp slowdown and possible recession if it voted to leave.

The ONS figures showed business investment in the first three months of 2016 was 0.8 percent down on a year ago, the first fall since Q1 2010. Ratings agency Fitch forecast on Wednesday that investment would fall by 5 percent next year due to uncertainty about the aftermath of the Brexit vote.

Finance minister George Osborne and the Confederation of British Industry said this week that some firms were already putting investment projects on hold.

But there was better news for households, whose combined real disposable income in the three months to March rose at its fastest rate in 15 years, up 5.4 percent on the year, reflecting both very low inflation and an increase in their numbers.

Source: Reuters