Export surge leaves UK current account deficit much smaller than expected
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The UK current account deficit stood at Â£ 8.6bn in the second quarter of 2021, well below the consensus-sought-Â£ 15.6bn and the -12.8bn recorded in the first quarter.
The current account balance is a record of a country’s international transactions with the rest of the world and has a particularly important fundamental impact on how the pound sterling is valued and behaves.
The current account is made up of a country’s trade in goods and services, its net income on cross-border investments, and its net transfer payments.
“The current account deficit remained in the second quarter well below its average of 4.2% in the second half of the 2010s, thanks in part to the end of contributions to the EU budget,” said Samuel Tombs, UK Chief Economist at Pantheon Macroeconomics.
Tombs says the Â£ 3.9 billion deficit in current transfers was the second smallest since the fourth quarter of 2008, largely due to the UK’s exit from the EU.
The ONS announced a significant upward revision of export growth in the second quarter, with exports rising from 4.0% qoq to 6.2% q / q.
The previous estimate for Q2 was half that at 3.0%.
Above: The UK trade balance was 0.1% of nominal GDP in the second quarter (April to June) 2021. Source: Office for National Statistics – Quarterly national accounts GDP.
The ONS reported a 13.4% increase in exports of goods, due to increases in chemicals, machinery and transport equipment, and manufactured goods.
But exports of services fell by 1.8%.
There was a significant downward revision in import growth from 6.5% q / q to 2.4% q / q.
Net trade added 1.0 percentage point to GDP growth in the second quarter, after subtracting 0.7 percentage point earlier.
Looking ahead, Pantheon Macroeconomics expects the current account deficit to gradually widen, as imports of travel services soar as Britons resume vacationing abroad.
Soaring global gas prices, given the country’s dependence on natural gas imports, is also likely to increase the deficit.
For the pound, developments in the current account deficit are crucial.
“The depreciation of the pound over the past week, despite rising expectations for UK interest rates, shows how the persistent current account deficit makes the pound sensitive to changes in global investor sentiment,” Tombs said.