Britain Needs Kind Strangers More and More as Deficit Swells

  • Revisions mean current-account deficit is bigger than thought
  • Pound falls as figures take shine off healthy consumer data

Philip Hammond.

Photographer: Chris Ratcliffe/Bloomberg

Britain is more reliant on the “kindness of strangers” than previously thought -- to borrow a phrase from Bank of England Governor Mark Carney.

Revisions mean the current-account deficit -- the difference between money coming into the U.K. and money going out -- was higher in both 2015 and 2016. In the second quarter, it stood at 23.2 billion pounds ($31 billion), well above market forecasts, and the deficit for the previous three months was revised sharply higher to 22.3 billion pounds.

The pound fell on the news, which took the shine off separate figures showing that consumers are in better shape than had been feared. The current-account deficit now stands at 4.6 percent of GDP and stood at almost 6 percent last year.

The data revived fears that Britain might struggle to finance such a large deficit. The willingness of foreign investors to keep buying British assets has been called into question since the Brexit vote last year, with Carney issuing multiple warnings about the state of imbalance.

The trade deficit narrowed marginally in the second quarter, aided by a more competitive pound, but the gap between what British investors earn on their foreign investments and what foreigners earn on their investments in Britain widened. There was also a deterioration in the secondary-income balance covering transfers.

Revisions had been well-trailed by the statistics office, which found that nonresidents have been earning more on their U.K. corporate-bond holdings than first thought.

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