UK current account gap at 24-year high, growth revised up

LONDON Fri Dec 20, 2013 12:38pm GMT

Shoppers cast shadows as they walk along a pedestrianized shopping street in Altrincham, northern England November 19, 2013. REUTERS/Phil Noble

Shoppers cast shadows as they walk along a pedestrianized shopping street in Altrincham, northern England November 19, 2013.

Credit: Reuters/Phil Noble

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LONDON (Reuters) - Britain's current account deficit ballooned to its widest since 1989 in the third quarter, suggesting its strong recovery is vulnerable to weak growth overseas and highlighting concerns that the economy remains unbalanced.

Data on Friday showed growth earlier this year and in 2012 had been stronger than previously thought, pushing up the annual growth rate to 1.9 percent in the June-September period from an earlier estimate of 1.5 percent.

Gross domestic product rose 0.8 percent from the preceding three months, in line with previous estimates, the Office for National Statistics said.

Figures on Friday nevertheless showed the government borrowed more in November than in the same month last year.

Britain has been one of the global economy's surprise success stories this year, turning itself from a laggard to one of the fastest-growing industrialised nations, with particularly strong jobs growth.

However, it is still catching up with rather than outperforming other big economies which suffered similar sharp falls in output due to the 2008 financial crisis.

Britain's economy remains 2.0 percent smaller than before the crisis although this itself is an upward revision from the 2.5 percent shortfall reported before Friday's data.

The Bank of England and economists have also been concerned that the recovery is unbalanced in a way that could ultimately prove unsustainable - with too great a reliance on household consumption and insufficient exports and business investment.

Friday's data showed business investment starting to improve but painted a bleak picture on trade.

"If the recovery is to be sustained at a healthy pace, it really does need a marked, extended pick up in business investment and for exports to improve markedly," said Howard Archer, an economist with IHS Global Insight.

Britain's current account deficit with the rest of the world leapt to 20.7 billion pounds ($33.9 billion) from 6.2 billion pounds in the second quarter, equivalent to 5.1 percent of GDP - its biggest share since the third quarter of 1989.

Economists had expected a deficit of 13.85 billion pounds.

Earlier this week, Bank of England Governor Mark Carney warned that recovery could be held back by weakness in the euro zone economies which are Britain's main trading partners.

The ONS said on Friday that the combined drag of the big trade deficit - which took a huge 1.2 percentage points off GDP growth in the third quarter - and weaker investment income from abroad caused the sharper widening.

Earlier on Friday, ratings agency Standard & Poor's affirmed Britain's triple-A credit rating but kept a negative outlook, saying the country would be vulnerable to a downgrade if the economic recovery was not sustained.

Stronger growth has boosted government tax receipts this year. Public borrowing between April and November - stripping out some one-off effects - was 2.2 percent lower than in the same period of 2012 at 84.0 billion pounds.

But public finances suffered in November, with public sector net borrowing at 16.5 billion pounds in the month, up from 15.6 billion pounds a year earlier.

The BoE's Carney has stressed the need to keep interest rates at a record low of 0.5 percent until the recovery is more secure, something that will need more investment by companies.

Business investment grew by 2.0 percent in the third quarter, more than the ONS's earlier estimate of 1.4 percent.

Household spending rose 0.8 percent in the third quarter compared with the April-June period, even as real disposable income rose by just by 0.4 percent.

The savings ratio fell to 5.4 percent from 6.2 percent in the second quarter as weak growth in household income prompted people to eat into their savings.

The BoE last month said it expected Britain's gross domestic product would pick up speed to grow by a quarterly 0.9 percent in the fourth quarter, and by an annual 2.8 percent in 2014. ($1 = 0.6111 British pounds)

(Writing by David Milliken and William Schomberg; Editing by Catherine Evans)

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