UK current account deficit narrows but still remains stubbornly high

The UK current account deficit narrowed down to £26.55bn in the first three months of the 2015 compared to the fourth quarter of 2014, but remains higher than expected.

According to the Official of National Statistics, the UK current account deficit was down from an upwardly revised £28.9bn in the final three months of 2014, but it still represents the equivalent of 5.8 per cent of the UK GDP.

The UK’s deficit in trade goods and services widened modestly to £7.5bn in the first quarter of 2015 from £6.9bn on the previous three monthswhich had been the lowest total trade deficit since the second quarter of 2013.

UK exports of goods and services decreased by 1.6 per cent quarter-on-quarter in the first quarter to £126.7bn, with imports falling 1.1 per cent to £134.2bn, mainly caused by the reduced oil prices.

IHS Global Insight chief economist Howard Archer says the increased current account deficits could become an “increasing problem” if the markets lose confidence in the UK economy “for any reason”.

He says: “The hope going forward is that improved growth in the Eurozone not only helps UK exports of goods and services but also lifts earnings on UK investment abroad, thereby helping the net primary income account.

”However, the strength of sterling against the euro is not only hampering UK exporters to the Eurozone but it dilutes the profits earned on UK investment in Eurozone countries.”