With Britain’s trade deficit not showing signs of improvement and fears rising over the global economy as well as the slump in exports, the pound is facing added pressure it could do without.
Figures will show a gaping current account deficit likely to add concerns over the EU referendum result which has so far destabilised the pound against the US dollar and the Euro.
Howard Archer, of IHS Global Insight, predicts the gap to grow to £23bn in the fourth quarter of 2015 from £17.5bn in the first quarter. ‘A renewed widening of the current account deficit would be an uncomfortable development for the UK economy,’ he said. ‘While the markets have so far taken a relaxed view, it could become an increasing problem if they lose confidence in the UK economy.’
Archer added that a victory for the ‘leave’ campaign on June 23rd creates ‘obvious potential’ for international investors to change their views on sterling.
Chris Hare, an economist at Investec, said the deficit was likely to have grown from 3.8 per cent to 4.5 per cent of GDP in the final quarter. ‘With the challenging global environment continuing to weigh on exports and net investment, large current account gaps could persist for some time,’ he said.
Mark Carney, the governor of the Bank of England, recently warned that the large current account deficit meant that Britain was ‘reliant on the kindness of strangers.’
In a detailed analysis last week, Kristin Forbes, a member of the bank’s monetary policy committee, highlighted the EU referendum as one of the potential threats to the economy given the ‘alarming’ rise of the deficit.
Other figures due out shortly include a third estimate for growth at the end of last year as well as consumer confidence indicators. Consumer confidence has so far held up well in the face of evidence of slowing growth.
However, the political in-fighting in the UK is harming the economy and will distract the nation’s attention from the worsening economic stability worldwide. The chancellor’s latest budget will prove to be inaccurate as the figures will not add up and his credibility will further plummet as a potential leader in waiting.
As for Boris, his popularity is on a knife edge these days as his bonking activities are being publicised to discredit his chances of being considered for the highest office in the land, should David Cameron lose his bid to convince the electorate to remain part of the EU.
In brief, we are in a mess and it will get much worse as the month of June approaches. Tightening our seatbelts is not the only answer, we need to think very carefully before we cast our votes in a referendum which will affect not only our generation but more importantly the future of our children.