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UK’s current account deficit worst in G10; weaker GBP on cards

Bank of EnglandBOEcurrent account deficitGBPsterlingUK

Jul 19, 2013 | UK

Data in the UK has been broadly positive, with much fanfare over revised GDP data showing the UK avoided the dreaded ‘double dip’.  This is a trivial distinction; the reality is the UK is still bumping along the bottom.  Manufacturing remains stuck in a hole, and industrial production has stalled, remarkably, at 1987 levels.

Of unequivocal concern is the UK’s current account deficit, now the worst of the developed economies.  This is being driven by an ever-worsening goods trade deficit, and a potentially alarming income surplus that has reverted to an income deficit.  The BoE is cognizant of this phenomenon, and has noted that a reduction in the nominal exchange rate is likely to be the solution.  We thus see a weaker GBP as the BoE looks towards sterling as being a major part of the adjustment mechanism.

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