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UK current account gap widens, fuelling fears of exposure from Brexit

Published 31/03/2016

The Office for National Statistics revised up its figure for gross domestic product (GDP) to 0.6% in the fourth quarter
The Office for National Statistics revised up its figure for gross domestic product (GDP) to 0.6% in the fourth quarter

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

The Office for National statistics (ONS) said the economy grew faster than first thought in the fourth quarter and 2015 as a whole, but this was overshadowed by figures revealing the current account deficit ballooned to £32.7 billion or 7% of gross domestic product (GDP) in the fourth quarter.

It said the economy expanded by 0.6% in the fourth quarter, revised up from the previous estimate of 0.5%, while it also revised GDP for 2015 to 2.3% 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 whole of 2015 stood at £96.2 billion 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.

Economists have been left increasingly concerned about the size of the deficit heading into Britain's vote on EU membership, fearing that a Brexit could reduce the flow of foreign money into the UK economy and make the deficit harder to sustain.

The Bank of England warned earlier this week that heightened uncertainty triggered by the EU referendum posed a risk to financial stability, while also expressing concerns about the size of the UK's current account deficit.

Chancellor George Osborne said the upward revisions to GDP meant Britain remained "one of the fastest-growing major advanced economies".

He added: "However, 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."

Howard Archer, chief European and UK economist at IHS Economics, described the widening of the current account deficit in the fourth quarter as "truly horrible".

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 by 0.2% between December and January, down slightly on growth of 0.3% between November and December last year.

It also revealed that the level of real household disposable income decreased by 0.6% in the fourth quarter, while spending by households grew by 0.6% over the same period.

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