Home Page | Photos | Video | Forum | Most Popular | Special Reports | Biz China Weekly
Make Us Your Home Page

News Analysis: Britain faces problem with current account deficit

English.news.cn   2014-03-29 08:46:19

LONDON, March 28 (Xinhua) -- Revisions to economic statistics revealed the British economy is still on track for recovery but faces a problem with the current account deficit, economists said Friday.

The British GDP growth in the final quarter of 2013 remained unchanged at the third revision at 0.7 percent, a figure economists welcomed as healthy.

This contributed to the 2013 growth of 1.7 percent, 0.1 percent down on previous revisions, but still the best since 2007, and a huge improvement on 2012's 0.3 percent.

However, economists were worried about the size of the current account deficit, revealed in the revised statistics.

The current account deficit was 22.4 billion pounds (about 37.2 billion U.S. dollars) in Q4 2013, almost the same as the previous quarter's 22.8 billion pounds, a record, leaving the Q4 deficit 5.4 percent of GDP and at 71 billion pounds for 2013.

Simon Wells, chief British economist with HSBC Global Research, said, "Despite a fall in the trade deficit in Q4, the overall current account deficit remains huge. A further fall in the deficit on the income account, to a record low, meant the current account deficit was 5.4 percent of GDP in Q4."

Wells cautioned, "Unless the income position improves, the UK may find it harder to run its persistent trade deficit. This could eventually weigh on sterling and/or growth."

Wells said the income deficit jumped to a record 10.3 billion pounds in Q4 from 5.9 billion pounds in Q3, and a turnaround on the position up to the end of 2011 when the UK ran a surplus.

Improved global growth may provide a solution to that by lifting earnings on British investments abroad.

"In the mid-2000s, the UK earned positive income from its investments abroad but this has turned negative since the financial crisis," said Wells.

Forecasts for growth used by the government rely on an improvement in Britain's income position to narrow the current account balance, said Wells.

"But if the income account continues to deteriorate, the UK could find it harder to sustain its persistent trade deficit. Eventually, this could mean that lower sterling and/or slower growth may be needed to narrow the current account deficit, which was 4.4 percent of GDP in 2013 the widest since 1989," said Wells.

Further warnings about the recovery came from the household savings ratio, which was estimated at 5.1 percent in 2013 compared with 7.3 percent in 2012, showing that consumers had raided their savings and this had been a big driver of economic recovery.

David Kern, chief economist at industry representative body the British Chambers of Commerce (BCC), said the economic recovery remained on course.

He added, "It is good news that growth was better balanced in Q4, with a fall in the trade deficit and an increase in business investment. However there is little doubt that the further efforts are needed to place the recovery on a broader footing as we are still too reliant on consumer spending."

Business investment growth in Q4 was unchanged at 2.4 percent, the fourth consecutive quarter of expansion. But it remains 19 percent below its early-2008 peak.

Net trade contributed strongly to growth, with export growth revised up markedly to 2.8 percent quarter-on-quarter. The emerging recovery in the eurozone, Britain's largest trading partner, had helped.

"If recovery is to be sustainable, we have to ensure that there is more support for those looking to invest and expand into overseas markets," said Kern. (1 pound = 1.66 U.S. dollars)

Editor: Shen Qing
Related News
Home >> In-depth            
Most Popular English Forum  
Top News  >>
Photos  >>
Video  >>
Top In-Depth News Latest News  
  Special Reports  >>