UK’s Need for Foreign Capital Leaves Bonds and Sterling Exposed
- The UK’s current account deficit continues to increase
- Gilts and sterling are liable to fall to help fund the deficit
This article is for subscribers only.
Despite the current reprieve, sterling and bonds remain at risk from the UK’s significant need for foreign capital.
Not since the 1970s has balance-of-payments data been so important for markets. The UK’s wide current-account deficit has been a long-standing risk for the country. In times of plenty, it could safely be ignored, and willing strangers easily found to fund it. But when inflation is in double digits, growth is slowing, the dollar is strong and the government decides to detonate its fiscal credibility with inflation-fueling tax cuts, it becomes of deep import.