UK economy grows faster than expected

March 31, 2016 10:22 am Published by

UK economy grows faster than expected

  • 31 March 2016
  • From the section Business

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The UK economy grew 0.6% in the fourth quarter of 2015, higher than the previous estimate of 0.5%.

As a result, the economy grew by 2.3% for the whole of 2015, rather than 2.2% as previously thought, according to the Office for National Statistics (ONS).

The figure came as a surprise to analysts, who had forecast that it would remain unchanged.

Other figures showed the UK’s current account deficit widened to a record high in the final quarter of last year.

The deficit in the three months to December was £32.7bn, the equivalent of 7% of GDP, said the ONS.

For the whole of 2015, the deficit came to £96.2bn or 5.2% of GDP.

Both figures were the highest since official records began in 1948.

The deficit means that the UK imported more goods and services than it exported.

Stability fears

Earlier this week, the Bank of England’s Financial Policy Committee warned that uncertainty over the UK’s membership of the EU posed risks to financial stability, with implications for the current account deficit.

It has said it will watch for indications that the outcome of the referendum on 23 June could make it more difficult to finance the deficit.

The ONS said the deficit had widened because income from the UK’s direct investments abroad had fallen, while payments to foreign investors in the UK had risen.

It also said the revision in GDP was caused by a stronger performance in the services sector and a smaller contraction in industrial production.

Chancellor George Osborne said the rise in the current account deficit meant the UK should not be contemplating Brexit.

“Today’s figures expose the real danger of economic uncertainty and show that now is precisely not the time to put our economic security at risk by leaving the EU,” he said.

Howard Archer, chief UK and European economist at IHS Global Insight, described the fourth-quarter current account figures as “truly horrible” and “a particularly uncomfortable development for the UK economy”.

“While the markets have so far taken a relatively relaxed view of the UK’s elevated current account deficits, it could become an increasing problem if the markets lose confidence in the UK economy for any reason – especially given the size of the fourth-quarter 2015 shortfall,” he added.

“This would make it harder for the UK to attract the investment inflows that it needs to finance the current account deficit and could weigh heavily down on sterling.

“An obvious potential trigger for the markets losing confidence in the UK economy could be a vote to leave the EU in the 23 June referendum.”

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This post was written by FSB News