Pound Strengthens as UK’s Current Account Deficit Narrows

The Confederation of British Industry’s (CBI) recent survey painted a mixed picture of the UK’s economy. While the manufacturing sector is seen growing strongly, the retail sector is struggling. Additionally, the postponement of trade talks with the EU, to March, has also weakened the Pound considerably. Thus, the market was closely watching the GDP, business investment, and current account deficit data reported yesterday and it indicated that the UK economy is performing well than expected by analysts.

The UK Office for National Statistics (ONS) reported that the current account deficit narrowed to £22.8 billion in the third-quarter, from £25.8 billion in the April-June quarter. Analysts had expected a current account deficit of £21.5 billion. The primary income deficit narrowed by £1.8 billion, while the secondary income deficit narrowed by £1 billion. The total trade deficit narrowed by £0.3 billion in the third-quarter. The deficit stood at 4.5% of GDP in 3Q17, down from 5.1% seen earlier.

The ONS also reported a GDP growth of 0.4% in the third-quarter, unchanged from the previous estimate. However, it was higher than 0.3% growth recorded in the previous two quarters. The economists were also not expecting any revision in the second estimate. The service sector was the main contributor to growth in the third-quarter. The manufacturing sector also had a positive impact on the GDP growth. Notably, household spending increased by 0.5% in 3Q17.

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Gross fixed capital formation (GFCF), in volume terms, was estimated to be £82.3 billion in 3Q17, up 0.3% from £82.1 billion in the second-quarter. Revised Business investment was estimated to be £45.9 billion in the third-quarter, an increase of 0.5% from £45.6 billion in the previous quarter. Analysts had expected only a 0.2% increase in Business investment.

Commenting on the data, a UK economist at Capital Economics, Paul Hollingsworth said

“The economy looks to have maintained this pace in Q4. This should mean that GDP growth for 2017 as a whole should come in at about 1.8%.”

The economic data provided above indicates the Pound will remain strong during the holiday season.

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