The UK’s current account deficit in the three months to December 2015 was a record high of £32.7 billion – a figure that was described as ‘truly horrible’ by one economist.
Howard Archer, chief UK and European economist at IHS Global Insight, also said that the news was ‘a particularly uncomfortable development for the UK economy’.
Unlike the Government’s budget deficit, the current account deficit refers to the country as a whole, both private and public, and takes the trade deficit into account. A current account deficit means that the value of exports is exceeded by the value of imports of goods, services and investment income.
Figures from the Office for National Statistics (ONS) showed that, in the final quarter of last year, the current account deficit was the equivalent of 7% of Gross Domestic Product (GDP), while for all of 2015 it was £96.2 billion, or 5.2% of GDP. Both figures were the highest since records began in 1948.
Mr Archer said: ‘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.’
Chancellor George Osborne said that the figures ‘expose the real danger of economic uncertainty and show that now is precisely not the time to put our economic security at risk by leaving the EU’.
Despite this, ONS figures also showed that the UK economy grew by 0.6% in the fourth quarter of 2015, higher than previous estimates of 0.5%, and that for the whole of 2015 it grew by 2.3%, rather than 2.2% as previously thought.
The ONS attributed the upward revision in GDP in part to a stronger performance in the services sector.