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U.K. Relies on Friends With Record Current Account Deficit

The U.K. current account deficit surged to a record, a sign that the nation is becoming ever more reliant on what Bank of England Governor Mark Carney called the “the kindness of strangers.”

Official data on Thursday showed the difference between money coming into the U.K. and money sent out widened to 32.7 billion pounds in the fourth quarter. That equates to 7 percent of GDP, the most since records began in 1955.

 In 2015, the deficit was 5.2 percent of GDP, the most since at least 1948 and the largest among the Group of Seven and the European Union, according to International Monetary Fund estimates.

While Britain's had a large deficit for years, the nation's June referendum on its European Union membership provides a backdrop to Thursday's data, with Carney cautioning in January that it requires continued foreign investment to be sustainable. He and his colleagues on the Financial Policy Committee have warned that the gap is a vulnerability, and may mean uncertainty surrounding the `Brexit' vote could lead to funding market strains.

``Nervousness about the U.K.’s dependence on the `kindness of strangers,' as Mark Carney recently put it, is only likely to build as the referendum nears,'' said Vicky Redwood, chief U.K. economist at Capital Economics Ltd. in London. Thursday's data ``will reinforce fears that the EU referendum could trigger a balance of payments crisis.''

The FPC said this week that the current-account deficit is ``high by historical and international standards'' and that its financing is reliant on continuing inflows of portfolio and foreign-direct investment.

``The U.K. continues to live well beyond its means,'' said Kallum Pickering, an economist at Berenberg Bank in London. ``Deficits to drive growth today come at the expense of growth tomorrow. Given the Bank of England’s ultra accommodative monetary stance the U.K. will probably be able to continue this trend for the some time. But it will eventually come at a cost.''

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