UK current account gap fuels Brexit exposure risk

UK 'still one of fastest growing economies' says Osborne
UK 'still one of fastest growing economies' says Osborne

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 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 £96.2bn 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.

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”.

“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.