Bank of England warning over current account deficit

FPC fears financial markets may turn against UK economy in time of stress as gap between money paid out and money brought in was 50% higher than expected



The UK’s large current account deficit could cause financial markets to turn against the British economy in a time of stress, the Bank of England has said.

The Bank’s financial policy committee (FPC) discussed the current account deficit at its most recent meeting in March and decided to keep it under close review, the meeting minutes showed.

The current account deficit, which reflects the gap between money paid out by the UK and money brought in, was more than half as big as expected for the fourth quarter last year.

The £22bn deficit compared with £14bn forecast by economists and was only slightly less than the record £22.8bn seen in the third quarter of 2014.

The FPC, whose job is to monitor and act on threats to UK financial stability, said there had been no big increase in domestic credit to fund the deficit and that if there was greater confidence in the economy the deficit would be easier to finance.

But the minutes added: “The current account deficit was large and could, in adverse circumstances, trigger a deterioration in market sentiment towards the United Kingdom ... The committee agreed to keep their assessment of this risk under close review and would monitor the maturity and liquidity of the financing of the deficit.”

The FPC noted that at about 6% of GDP the current account deficit was high by historical UK standards and compared with other countries.

The deficit in traded goods narrowed in the fourth quarter but the gap between income from UK assets overseas and from foreign-owned assets in the UK widened.

Some economists have said Britain is storing up problems for the future and that George Osborne’s goal of steering the economy away from domestic borrowing towards exports had not borne fruit.

The FPC said the overall balance of risks to UK financial stability was roughly unchanged since its previous meeting in December. Falling oil prices and improving growth prospects in the eurozone were good developments but Greece’s problems and China’s slowdown were worries.

Risks from the UK housing market and household debt had not risen since December but household indebtedness remained high. The FPC pointed out the increased use of interest-only mortgages by buy-to-let landlords and said it would monitor developments closely.

http://www.theguardian.com/business/2015/apr/07/bank-of-england-warns-on-risks-from-current-account-deficit?CMP=share_btn_tw

Finally holding Osborne to account?

Lol! No point blaming Osborne.

The UK was seen as a safe haven by foreign investors during the crash. They were bound to take some of their money back at some point.