UK GDP revised up but current account deficit widens

UK-Currency-Money-Coins-700.jpgThe UK economy ended 2015 with a better-than-estimated outlook, the latest data from the Office for National Statistics indicates.

GDP figures show the country grew by 0.6 per cent in the fourth quarter of 2015 instead of the 0.5 per cent reported last month, the ONS says.

The growth was dependent on the services sector on the output side as well as on consumer spending on the expenditure side.

Services grew 0.8 per cent while industrial output fell 0.4 per cent. In January alone, services grew 0.2 per cent.

In the latest Government Budget, the Office for Budget Responsibility slashed its forecast for UK GDP growth in 2016 to 2 per cent which was a greater downgrade than anticipated.

Earlier in March, the British Chambers of Commerce also downgraded its growth forecast for the UK economy from 2.5 per cent to 2.2 per cent.

Current account deficit widens

Separate figures from the ONS also show the UK current account deficit widened to a record high at £32.7bn in the fourth quarter of last year. This was largely do to a trade deficit and an increase in the shortfall on investment income, the ONS says.

Business investment slumped 2 per cent and exports were almost stagnant with net trade dropping 0.3 percentage points to -0.4 per cent.

IHS Global Insight chief economist Howard Archer calls the new figures “truly horrible” and says the sharp widening in the current account deficit is “a particularly uncomfortable development for the UK economy”.

He says: “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.

“This would make it harder for the UK to attract the investment inflows that it needs to finance the current account deficit and could weigh heavily down on sterling.”

Investec Wealth and Investment head of fixed interest Darren Ruane says: “The worsening in the current account deficit in the final quarter of 2015 to the equivalent of 7 per cent GDP is concerning ahead of the vote, suggesting the economy continues to be unhealthily dependent on the goodwill of foreigners.

“Furthermore growth is seemingly being propped up by the services sector, with manufacturing activity contracting by 0.3 per cent in 2015.”