LONDON (Reuters) - Britain’s large current account deficit does not pose “an existential threat” to the country’s recovering economy, thanks in large part to confidence in economic policymaking, a top Bank of England official said on Tuesday.
The current account deficit surged to 4.5 percent of gross domestic product in 2013 from 1.5 percent in 2011, significantly higher than during any of Britain’s currency crises in recent decades, BoE Deputy Governor Ben Broadbent said in a speech.
Broadbent said continued sluggishness in the global economy would make it harder for Britain to achieve strong and balanced growth, something that contributed to the International Monetary Fund saying this week that sterling was 5-10 percent over-valued.
It also helped explain why the BoE expected Britain’s strong economic growth rate to cool a bit in the rest of 2014.
“But that’s a long way from saying the current account deficit poses some independent, existential threat to UK growth,” Broadbent said.
While income on British-owned foreign assets had fallen, aggravating the current account gap, the balance in its more important net asset position and the floating sterling currency reduced the threat posed by the shortfall, he said.
“Most important, the UK has in place a hard-won policy framework that didn’t exist when it went through the traumas of the 1976 crisis,” Broadbent said referring to the collapse of sterling that year when Britain turned to the IMF for a rescue.
“This is something that should never be taken for granted.”
Broadbent was speaking at Chatham House, a non-profit organization specialising in international affairs.
Writing by William Schomberg; Editing by Susan Fenton