UK current account deficit hits quarterly record of £20.8bn

Group Business Editor

Friday 28 September 2012

THE UK ran up a record current account deficit of £20.8 billion in the second quarter, equal to 5.4% of gross domestic product (GDP) and much worse than its shortfall of £15.4bn in the first three months of 2012.

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Ian McConnelL

This huge deterioration, revealed in figures from the Office for National Statistics (ONS) yesterday, reflected a widening of the UK's trade deficit from £8.1bn to £10.1bn and a rise in the deficit on the investment income account from £1.9bn to £5.2bn as foreign earnings on investment in the UK increased.

It casts further doubt on Chancellor George Osborne's vision of "a Britain carried aloft by the march of the makers".Separate figures from the ONS showed UK GDP fell slightly less sharply in the second quarter than previously thought, but economists said this did not change the big picture.The ONS said UK GDP had fallen by 0.4% in the second quarter. It had last month revised its estimate of the second-quarter fall from 0.7% to 0.5%.But the UK economy has contracted for three straight quarters, and its output is more than 4% below its peak ahead of the 2008/09 recession, amid swingeing public spending cuts from the Coalition Government. While economists expect a rebound in GDP in the current quarter because of the impact of the extra Diamond Jubilee holiday on output in the three months to June, they highlight the weak underlying position.UK GDP in the second quarter, even after the revision, remained down 0.5% on the same period of 2011.In the latest figures, the drop in household expenditure in the three months to June has been revised from 0.4% to 0.2%. The fall in overall production output has been revised from 0.9% to 0.7%. Within this, the contraction of the manufacturing sector has been revised from 0.9% to 0.8%. The fall in construction output has been revised from 3.9% to 3%.Vicky Redwood, chief UK economist at consultancy Capital Economics, said: "The slight upward revision to GDP in Q2 did not alter the big picture that output is still over 4% below its pre-recession peak. We continue to expect GDP to contract by 0.5% this year, and expect only a sluggish recovery thereafter."She added: "Looking ahead, the economy should rebound in Q3 as the bank holiday effect unwinds and any Olympics boost comes through. But we expect this to mask a weak underlying performance and GDP may even contract again in Q4."Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "The trimming of GDP contraction in the second quarter does not actually fundamentally change the economic story."

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UK current account deficit hits quarterly record of £20.8bn

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