UK Current Account Deficit At Post-War High

Last year the UK current account deficit – the gap between income earned overseas by UK exporters and investors and income earned in the UK by foreign companies and investors – rose to 5.1% of GDP, a post-war high.

This represents a nasty blow to the idea of a rebalanced UK economy, driven by exports and investment. It is sobering that the UK current account deficit is even larger than in the post war years which witnessed sterling crises: 1947, 1966, 1967 and 1976.

What marks Britain's burgeoning current account from its predecessors is that this one has been driven by a collapse in the UK's surplus on investment income. In the past it was a surge in imports, and a widening trade deficit, which caused the deterioration. But since 2012 the UK's trade deficit has been broadly constant, with a growing surplus on trade in services offsetting a widening deficit on trade in goods.