Tuesday, 8 January 2013

Sterling crisis looms as UK current account deficit balloons

"Low growth has undermined attempts to reduce the fiscal deficit, which remains one of the highest in the OECD. This in turn is likely to lead to the loss of Britain’s prized triple A credit rating this year, making the UK comparatively less attractive to overseas investors. What’s more, capital flows from the eurozone to perceived “safe havens” such as the UK are slowing as the crisis eases. There is also evidence of elevated concern among investors about Bank of England money printing.
But some of the other reasons are less well appreciated, possibly because we’ve become so accustomed to them. Almost unbelievably, Britain has not enjoyed a trade surplus in goods since 1981, or more than 30 years ago. This long-standing weakness has been partially compensated for by a relatively large surplus on services, and on overseas income, but even so, Britain has been in overall current account deficit ever since the mid-1980s."

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