LONDON: The U.K.’s balance of payments deficit with the rest of the world narrowed dramatically in the final quarter of 2016, official data showed Friday, as a fall in the pound following June’s Brexit vote boosted exports as well as British earnings from overseas. The U.K.’s current-account deficit–a broad measure of a country’s trade and earnings from abroad–more than halved in the final three months of the year, falling to 12.1 billion pounds ($15.08 billion) in the fourth quarter from GBP25.7 billion in the third. The deficit narrowed to 2.4% of annual national income, the lowest level since early 2011. The scale of the decline–from 5.3% of national income in the third quarter–was the largest between two quarters on record, the Office for National Statistics said. The data come as Prime Minister Theresa May on Wednesday officially launched two years of exit talks with the European Union. Proponents of Brexit are looking to boost trade with countries beyond the EU to fuel British growth. But critics say that trade and British incomes will suffer once the country gives up its membership of the EU’s vast single market for goods and services. Sterling was 17% lower against the currencies of the U.K.’s main trading partners in the fourth quarter than it was a year earlier, a slide that lifted exports and swelled U.K. earnings on its assets overseas, data showed.
Exports of services hit a new record in the third quarter, the ONS said. The country’s current-account deficit with the EU narrowed and it recorded the largest surplus with the rest of the world since 2013. Data showed that British trade powered growth in the fourth quarter, dwarfing the contribution from household, business and government spending. The economy grew at a revised annualized rate of 2.7% in the fourth quarter, the ONS said, compared with an earlier estimate of 2.9%. The quarterly growth rate was unrevised, at 0.7%. Improving Britain’s balance of payments and rebalancing the economy towards trade and away from debt-fueled consumer spending has been a longstanding goal of successive British administrations. Trade deficits have come under greater political scrutiny in recent months. U.S. President Donald Trump has made narrowing U.S. deficits with neighbors such as Mexico and rivals such as China and Germany a key policy goal. Friday’s data showed British consumers reduced their savings in the final quarter to finance consumption. Economists fret that quickening inflation and meager wage growth could squeeze consumer spending and growth more broadly this year. Business investment fell on the quarter.
