U.K. current account deficit likely to have narrowed slightly in Q2

The U.K.’s current account deficit is expected to have dropped just slightly in the second quarter of 2016. In recent years, the current account deficit has increased robustly reaching a high of GBP 34 billion, which is 7.2 percent of the GDP in the fourth quarter of 2015. It declined just a tad by GBP 32.6 billion in the first quarter of 2016. This is mostly due to the decline in the net income on direct investment. This is due to the U.K. economy’s outperformance as compared to its peers, said Societe Generale in a research note.

The outperformance is likely to diminish gradually as the U.K. economy eases after the Brexit vote and as a beneficial translation impact from the recent decline in the pound begins to be felt; however, those effects would emerge after some time. Therefore little improvement is expected in the second quarter print, particularly as the trade deficit balance component of this rose to GBP 12.6 billion from GBP 10.6 billion. A small decline in the current account deficit to GBP 30 billion in anticipated, according to Societe Generale.