UK current account deficit remains near record

View of Aberdeen harbour Image copyright Getty Images

The UK's current account deficit remained close to a record high in the first quarter of the year.

The deficit in the three months to March was £32.6bn, the Office for National Statistics said, down slightly from the upwardly revised £33.96bn recorded in the final quarter of 2015.

A current account deficit means the value of imports of goods, services and investment income exceeds exports.

Separate data confirmed the UK economy grew 0.4% in the first quarter of 2016.

The gap between imports and exports may be helped by the falling pound, which will make UK-manufactured goods cheaper overseas.

The pound fell to its lowest level against the dollar for more than 30 years after the country's decision to leave the EU.

However, before the referendum on 23 June, the governor of the Bank of England, Mark Carney, said that a vote to leave the bloc would test the "kindness of strangers".

He was referring to investors who might now have second thoughts about putting their money into British assets, including government debt, in an uncertain environment.

'Depressing' figures

Howard Archer, chief UK and European economist at IHS Global Insight, described the current account figures as "highly uncomfortable" for the UK economy.

He added: "There is a substantial danger that the UK will find it increasingly hard to attract the inward flows of capital needed to finance the current account deficit, particularly given its recent credit rating downgrades and the very real possibility of more to come."

Ratings agency Fitch predicted on Wednesday that investment would fall by 5% next year because of the uncertain climate created by the Brexit vote.

Martin Beck, senior economic advisor to the EY Item Club, described the near-record current account deficit as "fairly depressing", but suggested there might be a silver lining.

He said: "We would expect the current account deficit to narrow significantly from this point onwards, through a combination of the impact of the sizeable depreciation of the pound on exports and more subdued demand for imports."

The growth in GDP of 0.4% was in line with forecasts and was up 2% on the same period last year.

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