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UK current account deficit hits record £96.2bn as inward investment falls

By Ben Woods

Britain's current account gap has surged to a record high, fuelling fears the economy could be left exposed if the UK leaves the European Union.

The Office for National statistics (ONS) said the economy had grown faster than first thought during the fourth quarter of the year and in 2015 as a whole.

But this was overshadowed by figures showing the current account deficit ballooned to £32.7bn or 7% of gross domestic product (GDP) in the fourth quarter.

The ONS said the economy expanded by 0.6% in the fourth quarter, revised up from a previous estimate of 0.5%. It also revised GDP for the year to 2.3%, up from 2.2%.

But official figures showed the mammoth fourth quarter deficit in the current account - the gap between money flowing in and out of the economy - meant the deficit for the year stood at £96.2bn or 5.2% of GDP, the largest since records began in 1948.

The expansion in the deficit comes after a fall in direct investment into the UK from abroad, coupled with a rise in payments to foreign investors.

Howard Archer, chief European and UK economist at IHS Economics, described the widening of the current account deficit as a worrying development.

He added: "The sharp widening in the current account deficit in the fourth quarter of 2015 is a particularly uncomfortable development for the UK economy.

"While the markets have so far taken a relatively relaxed view of the UK's elevated current account deficits, it could become an increasing problem if the markets lose confidence in the UK economy for any reason - especially given the size of the fourth quarter 2015 shortfall."

The ONS said Britain's powerhouse services sector, which counts for more than three-quarters of the economy, grew 0.2% between December and January, down on growth of 0.3% between November and December last year. Real household disposable income, meanwhile, decreased 0.6% in the fourth quarter.

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