World Economy

UK Current Account Deficit Widens

UK Current Account Deficit WidensUK Current Account Deficit Widens

The UK current account deficit widened in the second quarter as the trade gap hit a 2 1/2-year high and Britain continued to record heavy outflows of investment income.

The shortfall—the difference between money coming into the UK and money sent out—was £28.7 billion ($37.16 billion), the Office for National Statistics said on Friday. That equates to 5.9% of gross domestic product, up from 5.7% in the first quarter. The deficit hit a record 7% at the end of last year, Bloomberg reported.

Brexit has thrown the current-account gap into the spotlight, with some analysts warning that foreign investors may be less willing to finance the shortfall by buying UK assets. Mounting concern has contributed to the sharp fall in sterling since the June 23 decision to leave the European Union.

Separately, the ONS said the economy grew 0.7% in the second quarter, slightly more than the 0.6% previously estimated. Consumers stepped up their spending and business investment increased, offsetting the biggest drag from net trade since 2013.

At 5.4% of GDP last year, the UK current account deficit was double that of the US. Bank of England Governor Mark Carney has warned of a reliance on “the kindness of strangers” and credit-rating agencies highlight the gap as a key weakness. Trade Secretary Liam Fox added his voice on Thursday as he chided British companies for exporting too little.

The total trade deficit widened to £12.7 billion in the second quarter, or 2.6% of GDP. The gap between what British investors earn on their foreign investments and what foreigners earn on their investments in Britain narrowed but still totaled almost £10 billion. The deficit on secondary income, which covers remittances and government transfers, widened.

The GDP figures paint a picture of an economy that held its own prior to the Brexit vote and there are signs of continuing resilience.

“This fresh data tends to support the view that there has been no sign of an immediate shock to the economy, although the full picture will continue to emerge,” said ONS statistician Darren Morgan.