UK current account narrows on improving trade account
The component of the UK current account that has driven the blowout in the balance in the last three years has been the massive deterioration in the net property income component. This is the return on UK investment abro…
The component of the UK current account that has driven the blowout in the balance in the last three years has been the massive deterioration in the net property income component. This is the return on UK investment abroad net of the return on foreign investment in the UK.
The deterioration is the result of the strong outperformance of the UK in that period relative to the euro area which has led to higher investment in the UK and higher returns on that investment.
With the UK outperformance continuing, it is unlikely that the trend in this component will have improved significantly in Q4 14.
According to Societe Generale it is highly volatile and so the published deficit on this part could easily have narrowed a little. On top of that, the trade deficit fell by £3bn in Q4 so overall the current account deficit is expected to have been cut from £27bn to £22bn.
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