Britain’s trading position with the rest of the world has deteriorated sharply with the current account deficit swelling to its widest on record, fanning fears about the sustainability of the economic recovery.
News of the ballooning current account shortfall overshadowed figures showing economic growth was stronger than first thought in the fourth quarter. GDP rose 0.6% compared with an earlier estimate of 0.5% and 0.4% growth the previous quarter, according to the Office for National Statistics (ONS).
Experts warned that even that brighter headline figure masked an unbalanced economy with consumer spending being relied on while industry contracted and business investment dropped sharply. At the same time household incomes were shown to have fallen in real terms, casting doubt over how much longer consumers could keep up their pace of spending.
It was the figures showing a sharp rise in Britain’s current account that grabbed the most attention and fuelled the debate around the UK’s economic prospects should it opt to leave the EU.
The current account deficit reflects Britain’s trade gap with the rest of the world and the shortfall between money paid out by the UK and money coming in. It swelled to £32.7bn in the fourth quarter, equivalent to 7% of GDP, up from 4.3% in the third quarter. This was the highest since quarterly records began in 1955. Economists in a Reuters poll had expected the deficit to widen to £21.1bn.
For 2015 as a whole, the current account deficit hit £96.2bn or 5.2% of GDP, the widest since records began in 1948.
The Bank of England has highlighted that the UK relies on foreign investors to fund the shortfall on its balance of payments and has expressed concern that in the event of a vote to leave the EU in June’s referendum foreign investors will become more nervous about buying, or holding, UK assets.
Chancellor George Osborne, who is campaigning for the UK to remain in the EU, welcomed the growth upgrade:
“The UK is not immune to risks in the global economy as slowing global growth weighs on our outlook. Today’s figures expose the real danger of economic uncertainty and shows that now is precisely not the time to put our economic security at risk by leaving the EU.”