U.K.'s Risky Current-Account Deficit Isn’t as Big as Was Thoughtby
Statistics office revises trade data for 2015 and 2016
Bank of England sees current account as major stability risk
The Bank of England got some good news this week: the current account deficit isn’t as massive as everyone thought.
Just days after the bank cited it as one of the key risks to U.K. financial stability, the Office for National Statistics said the balance of payments deficit is almost 3 billion pounds narrower than originally measured. It was 5.4 percent of GDP in the second quarter, instead of the 5.9 percent previously estimated.
The changes are due to an error in the erratics category, which includes gold, silver, precious stones, aircraft and ships, the statistics office said on Tuesday. The revisions affect data from January 2015 to September 2016, with most quarters seeing an improvement in the current account picture.
The error doesn’t affect trade in services, though revisions to goods mean the total third-quarter deficit was 6 billion pounds bigger than previously thought, at 17 billion pounds. That suggests net trade was a drag on growth in the period, whereas it was previously estimated to have added to expansion.
“There is no impact on total GDP, as the corrections to components of trade and the acquisitions less disposals of valuables offset each other,” the ONS said of the period from the first quarter of 2015 to the second quarter of 2016. It will publish its next estimate of third-quarter economic growth on Dec. 23, when it will also release balance of payments data for the three months.
The record current-account deficit in the fourth quarter of last year, at 7 percent of GDP, was also revised down, slipping to 6 percent. The BOE highlighted it as a risk in its Financial Stability Report on Nov. 30.
While the pound’s 15 percent drop since the Brexit referendum should help to narrow the deficit, the central bank said it’s also at risk as details of the “future trading relationships with the European Union and other countries are as yet unknown.”
Financial services, for instance, “currently benefit from relatively open access to EU markets” and the surplus in financial services trade is about 3 percent of GDP, a big proportion of which is with the EU. The financing of the deficit is also vulnerable to a reduction in foreign investor appetite for U.K. assets, the BOE said.