U.K. Economy Shows More Momentum; Current-Account Gap Widens

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  • Economy grows 0.6% in 4Q rather than previously estimated 0.5%
  • Current-account deficit widened to a record 7% of GDP in 4Q

The British economy ended 2015 with more momentum than previously estimated.

Gross domestic product rose 0.6 percent in the fourth quarter instead of the 0.5 percent reported last month, the Office for National Statistics in London said on Thursday. There were upward revisions to services, industrial output and construction. GDP rose 0.4 percent in the third quarter.

The figures paint a picture of an economy continuing to be driven by consumers at a time of deepening troubles in the world economy. The current-account deficit widened to a record and recent surveys suggest domestic resilience may be fading amid concern that the U.K. might vote to quit the European Union in the June 23 referendum.

Household spending rose 0.6 percent, helping to counter a 2 percent slump in business investment and near stagnant exports. Net trade knocked 0.3 percentage point off output.

The divergence was also reflected in the output measures, with services -- the largest part of the economy -- growing 0.8 percent and industrial output falling 0.4 percent. In January alone, services grew 0.2 percent.

Record Deficit

The pressures from the global slowdown were underlined by separate figures showing the current-account deficit -- the difference between money coming into the U.K. and money sent out -- widened to 32.7 billion pounds in the fourth quarter, much higher than forecast. It equates to 7 percent of GDP, the most since records began in 1955.

The slippage from 20.1 billion pounds in the third quarter was due to a widening of the trade deficit and an increase in the shortfall on investment income, as Britain earned less on its holdings overseas. Analysts say the gap could widen if Britain quits the EU. In 2015, the deficit was 5.2 percent of GDP, the most since at least 1948.

Industry surveys showed a marked cooling of activity in February and Bank of England officials said this month that the EU referendum may weigh on investment and economic growth. The pound is set for its worst quarter since 2009 and traders are pricing in the possibility of an interest-rate cut this year. The currency was little changed against the dollar at $1.4378 as of 11:04 a.m. in London.

Economists in a Bloomberg survey forecast growth to decelerate to 2 percent this year. It grew an upwardly revised 2.3 percent in 2015.

Other figures show real disposable income fell 0.6 percent on the quarter, while the savings ratio dropped to a record 3.8 percent.