UK posts big current account deficit, household savings down

UK posts big current account deficit, household savings down

LONDON - Britain's current account deficit was much bigger than expected in the fourth quarter and households ran down savings to keep up their spending, reminders of the need to put the economy on a more balanced footing to maintain growth.

By William Schomberg and Ana Nicolaci da Costa

LONDON Fri Mar 28, 2014 12:21pm GMT

Workers walk through the City of London March 19, 2014.

Credit: Reuters/Neil Hall

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(Reuters) - Britain's current account deficit was much bigger than expected in the fourth quarter and households ran down savings to keep up their spending, reminders of the need to put the economy on a more balanced footing to maintain growth.
The current account deficit in the October-December period was 22.4 billion pounds ($37.21 billion), or 5.4 percent of gross domestic product, down only slightly from a record of 5.6 percent in the third quarter, official data showed.
A Reuters poll had predicted a deficit of 14 billion pounds.
Britain's economy staged a surprisingly fast rebound last year and looks to have started 2014 with the same kind of momentum. But the recovery has yet to broaden significantly beyond its reliance on unsustainable domestic demand.
The Office for National Statistics confirmed the economy grew 0.7 percent in October-December last year compared with the previous quarter and was 2.7 percent bigger than in the fourth quarter of 2012.
Economists had expected no change to previous ONS estimates.
The current account shortfall was driven largely by an increase in foreign investment earnings leaving the country and a drop in income on British investments abroad, heightened by a rise in sterling, the ONS said.
Economists said the data underscored the importance of Britain exporting and investing more, of which there were some signs in the fourth quarter.
Last week, British finance minister George Osborne announced measures he said would help companies invest and export more.
For 2013 as a whole, the current account deficit stood at 4.4 percent of GDP, the widest deficit since 1989.
Overall economic growth in 2013 was revised to 1.7 percent, matching a growth rate last seen in 2010, down from a previous estimate of 1.8 percent.
MIXED REPORT
Samuel Tombs, UK economist at Capital Economics, said the data presented "a mixed report card".
Exports counted for more of the economy's growth between October and December than previously thought and strong growth in business investment was confirmed.
But a fall in household incomes - down 0.1 percent from the third quarter - and a decline in the savings ratio to 5.0 percent from 5.6 percent raised concerns about how long the recovery could last.
"Nonetheless, a recovery in real earnings and further employment gains should provide more solid foundations for further growth in consumer spending this year," Tombs said.
The ONS also said Britain's dominant services sector got off to a solid start in 2014, growing 0.4 percent in January, picking up a bit of speed from December.
Data from the ONS released on Thursday showed that retail sales rose by more than expected in February, another sign of continued momentum in Britain's economy at the start of the year.
And a separate survey published earlier on Friday showed British consumer sentiment rose in March to its highest level since around the start of the financial crisis in 2007. ID:nL4N0MO2V0]
Despite Britain's stronger than expected recovery, total output in the fourth quarter was still 1.4 percent below the pre-financial crisis peak in early 2008 - a weaker situation than in almost all other big advanced economies. ($1 = 0.6019 British Pounds)
(Writing by William Schomberg; Editing by Ali
on Williams)
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