U.K. Current-Account Deficit Widens; GDP Growth Revised Upby
3Q trade deficit widens to 2.8% of GDP, most since 2013
GDP revised up to 0.6% and momentum continued into 4Q
The U.K. current-account deficit widened in the third quarter as Britain posted its worst trade performance in almost three years.
The difference between money coming into the U.K. and money sent out was 25.5 billion pounds ($31.3 billion), the Office for National Statistics said on Friday. That’s equal to 5.2 percent of gross domestic product. The trade deficit widened to 2.8 percent, the most since the fourth quarter of 2013.
The Bank of England has highlighted the current-account deficit as a potential risk, particularly if Brexit deters foreign investment. It’s forecast to be double that of the U.S. this year at more than 5 percent of GDP but concern has been partly allayed by the weaker pound, which is expected to boost exports and reduce spending on imports. Economists see the gap narrowing to about 4 percent in 2017, making Britain less reliant on the willingness of foreigners to keep buying U.K. assets.
The economy is showing resilience to the Brexit vote so far, with separate figures showing GDP grew 0.6 percent in the third quarter, the same as in the second quarter and more than previously estimated. Consumers once again drove the expansion, offsetting the biggest drag from trade since 2012.
The performance may further encourage pro-Brexit campaigners to push for a complete withdrawal from the European Union and the single market. U.K. Prime Minister Theresa May is preparing to start two years of formal exit talks by the end of March, though she has refused to flesh out her negotiating priorities.
“The economy is strong, and since Brexit has remained strong,” Patrick Minford of Cardiff Business School, co-chairman of the Economists for Brexit group, said on Bloomberg Television. “It will get stronger. The free-trade agenda is designed to strengthen the British economy, contrary to all the propaganda about soft Brexit, staying in the single market.”
Compared with a year earlier, U.K. GDP grew 2.2 percent in the third quarter, the ONS said. Annualized growth was revised up to 2.3 percent, which compares with a rate of 3.5 percent in the U.S.
Corrections to trade data meant the current-account deficit was smaller than previously thought over recent quarters. It peaked at 5.5 percent of GDP in the fourth quarter of 2015 instead of 7 percent.
The revisions also had an effect on the composition of GDP in the third quarter. Net trade knocked 1.2 percentage point off growth, whereas it was previously estimated to have contributed 0.7 point.
Consumer spending grew an unrevised 0.7 percent and business investment rose 0.4 percent, less than the 0.9 percent previously thought. Growth in the dominant services industry was revised up to 1 percent. There were slight downward revisions to overall growth rates in the first and second quarters.
Services grew 0.3 percent in October from September, helped by retailers. It suggests the economy maintained momentum going into the fourth quarter despite declines in construction and industrial production. Economists see a slowdown next year as uncertainty hits investment and accelerating inflation saps consumer spending. Minford discounted the threat from inflation, saying the labor market is tight and wage growth should also pick up.
Real disposable income fell 0.6 percent in the third quarter from the second. The savings ratio declined to 5.6 percent, its lowest since the third quarter of 2008.