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UK’s Current Account Deficit Reaches Record Levels

British MoneyThe UK’s current account deficit has reached £32.7 billion for the fourth quarter of 2015 according to latest reports from Office for National Statistics (ONS). The deficit is an increase of 4.3 percent over third quarter figures and works out to 7 percent of its GDP (Gross Domestic Product). It is the highest deficit reported for a quarter since records commenced in 1955. Analysts had expected the deficit for the quarter to be £21.1 billion.

The deficit for the whole year of 2015 amounted to £96.2 billon, equivalent to 5.2 percent of GDP. This is the widest deficit ever reported for UK since records started in 1948. The increasing deficit overshadowed encouraging news that the country’s GDP had grown more than anticipated, posting a growth of 0.6 percent, as compared to expectations of 0.5 percent and the growth of 0.4 percent recorded in previous quarter.

The Bank of England said that the UK depended on foreign investors to bridge the shortfall in its balance of payments and added that investors are likely to become more worried about buying or holding UK assets in the event that UK votes to leave EU in the upcoming referendum.

UK Chancellor George Osborne responded to the reports saying that UK’s outlook was reflecting the global slowdown. He reiterated that the latest results showed the extent of UK’s economic uncertainty and that it was a reminder that UK could not risk its economic security by leaving the EU.

Analysts have similarly said that the results could become a serious issue if financial markets become doubtful of the stability of UK’s economy.

In a statement, Howard Archer economist at IHS Global Insight said,

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. An obvious potential trigger for the markets losing confidence in the UK economy could be a vote to leave the EU in the 23 June referendum

The reports also revealed that both trade deficit and deficit on investment income for UK had worsened. Exports to the UK dropped and imports increased in the last quarter of 2015 resulting in a trade deficit of £12.2 billion, up from £8.9 billion last year.

The GDP however grew 2.3 percent in whole year of 2015, more than the anticipated 2.2 percent. The breakdown showed that services, the largest sector in UK’s economy had increased by 0.8 percent. While construction output went up 0.3 percent, industrial production dropped 0.4 percent.

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