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UK Q3 current account preview: Current account to widen to 21.9bln pound

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 23, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - UK's current account balance for the third quarter of 2015 will be released today. The deficit is expected to have widened in the July-September period. The current account deficit for Q3 is expected to come in at 21.9 billion pounds, higher than 16.8 billion pounds recorded in the previous quarter. Thus the Q3 current account deficit will likely widen to close to 5 per cent of the GDP. The current account deficit in the same quarter last year had widened to 6 per cent of nominal GDP. The deficit recorded in Q3 2014 was the joint largest deficit since Office for National Statistics (ONS) records began in 1955.

    A current account deficit is the subtraction of imports and investment income from a country exports and any investment income from abroad. In simple terms, it signifies imports have outweighed exports.

    If a company wishes to import goods to Britain for another country, they will have to exchange sterling for the currency in which they are paying for the goods. Therefore, if imports surpass exports, the currency of the country in question (in this case UK) is likely to fall. However, sterling has somehow managed to decline considerably less than a lot of the other currencies from countries which have large current account deficits. The sterling’s strength on the other hand has made things all the more difficult for UK exporters. This goes on to prove it is not always necessary that a currency will always depreciate for a country which has running current account deficits, doesn't mean that its currency should depreciate.

    However, a large current account deficit should not be a problem for UK if it can finance the deficit. Going by UK’s records it does not seem a very difficult job for Britain. Foreigners are ready to keep flowing cash into UK. UK’s net borrowing thus is not threatened for now. It has been noted earlier as well that UK has been considered as a safe heaven even when the global economic outlook was unimpressive. Thus it seems that as long as there is crisis in global economy, the UK will not have a problem financing its deficit.

    Third estimate for Q3 GDP

    The third estimate of UK’s third quarter GDP will be released today by the ONS. UK GDP in volume terms was estimated to have increased by 0.5% between Quarter 2 (Apr to June) 2015 and Quarter 3 (July to Sept) 2015, unrevised from the preliminary estimate of GDP published 27 October 2015, marking eleven consecutive quarters of positive growth. The third estimate is unlikely to project a different GDP growth figure. Month on month GDP for the third quarter is expected to stay unchanged from the second estimate at 0.5 per cent. Year on year, the GDP is expected to come in at 2.3 per cent, once again unchanged from the second estimate.

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