Rising investment income drives fall in UK current account deficit, says ONS

 
Tim Wallace
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BRITAIN’S current account deficit narrowed to its smallest in more than three years in the second quarter, the Office for National Statistics (ONS) revealed yesterday.

The gap between imports and exports fell to £2.02bn between April and June from £4.12bn in the previous three months. The figure represents just a quarter of analysts’ forecasts for a deficit of £9.3bn.

The gap was equivalent to 0.5 per cent of GDP, its smallest since in the third quarter of 1998.

“These figures do point to the prospect of slightly faster growth in UK private domestic demand in 2012,” said Lombard Street Research’s Jamie Dannhauser. “However, the major risks to the UK economy are external – not just from the ongoing Eurozone farce but also from a policy-induced slowdown in the emerging world.”

Rising investment income from abroad drove the drop, while the outflow of investment revenue fell.

Household savings data, meanwhile, showed the highest rate of savings in almost a year. The ratio rose to 7.4 per cent in the second quarter, up from 5.9 per cent in quarter one.

Analysts warned that squeezed households may not be able to maintain a higher level of savings. “With the labour market deteriorating rapidly and the fiscal squeeze still intensifying, we think further sharp falls in incomes, saving and spending are likely,” said Capital Economics.