U.K. Current-Account Gap Stays Near Record at 6.9% of GDP

  • Shortfall just shy of record 7.2% seen in fourth quarter 2015
  • GDP figures paint picture of growth driven by consumers

As Brexit threatens to blast the U.K. economy, few things seem more exposed than the balance of payments.

The current-account deficit -- the difference between money coming into the U.K. and money sent out -- stood at 32.6 billion pounds ($44 billion) in the first quarter, or 6.9 percent of economic output, the Office for National Statistics said on Thursday. That’s more than economists forecast and just below a record 7.2 percent seen in the fourth quarter of 2015.

Last week’s vote to leave the European Union has heightened concerns about the current account, with economists warning that foreign investors may be less willing to finance the shortfall by buying U.K. assets. It’s what Bank of England Governor Mark Carney has described as Britain’s increasing reliance on “the kindness of strangers.”

“Trap door under sterling?” Fathom Consulting asked as it predicted the deficit could pile further pressure on the pound. “It could fall 20 percent or more if markets decide that the current account ought to be brought rapidly back into balance,” the researcher said in a note.

Separately, the ONS said the economy grew 0.4 percent in the first quarter, the same as previously estimated. Consumer spending grew at its fastest pace in almost a year, offsetting declines in business investment and exports.

Almost three quarters of respondents to a Bloomberg survey conducted after the Brexit referendum say the economy will slip into a recession for the first time since 2009.

Off Balance

The total trade deficit widened to 12 billion pounds, while the gap between what British investors earn on their foreign investments and what foreigners earn on their investments in Britain was little changed at 14.9 billion. The secondary-income deficit narrowed to 5.7 billion pounds.

The current-account deficit in 2015 was revised up to 5.4 percent of gross domestic product, the largest since records began in 1948.

Chancellor of the Exchequer George Osborne warned during the referendum campaign that quitting the EU could trigger a balance-of-payments crisis and Britain saw its credit ratings downgraded this week.

While uncertainty surrounds future trade terms with the EU -- the destination for almost half of British exports -- the current-account deficit could narrow as a weaker pound boosts exports and a stronger growth in euro-region delivers investment income, economists say.

The pound strengthened 0.1 percent to $1.3440 at 11:30 a.m. London time. It has fallen 8.8 percent since the end of last year. 

Overall economic growth slowed from 0.7 percent in the fourth quarter of 2015. From a year earlier, the economy expanded 2 percent, unrevised from the previous estimate.

Consumers are being buoyed by rising wages and subdued inflation. Real disposable income rose 2 percent between January and March, the biggest quarterly gain since 2001. The saving ratio was little changed at 5.9 percent.

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