Higher-than-expected UK current account deficit fuels Brexit concerns

Britain's gaping current account deficit hit a higher-than-expected £32.6 billion in the first three months of the year, fuelling fears the economy will be left exposed by Brexit.

Official figures showed the current account deficit dipped slightly to 6.9% of gross domestic product (GDP), but remained close to the all-time record high of £34 billion, or 7.2% of GDP, seen at the end of 2015 and was far higher than forecast by economists.

The Office for National Statistics (ONS) left its earlier estimate of growth in the first quarter unchanged at 0.4% and at 2% year-on-year.

This marks a fall on the 0.7% growth seen in the previous three months - revised up from the previous estimate of 0.6% for the fourth quarter.

But business investment fell more than first thought, down by 0.6% to £43.7 million, in a sign of caution in the lead-up to last week's EU referendum vote.

The high current account deficit has seen worries mount over the UK's resilience against Brexit shocks, with concerns that the vote to leave the EU and the falling pound will reduce the flow of foreign money into the UK economy and make the deficit harder to sustain.

Bank of England governor Mark Carney had already warned ahead of the EU referendum that the UK's current account deficit left it relying on the "kindness of strangers".

Howard Archer, chief UK and European economist at IHS Global Insight, said the current account figures were "highly uncomfortable" for the UK economy and warned it could trigger a "sterling crisis".

He said: "There is a substantial danger that the UK will find it increasingly hard to attract the inward flows of capital needed to finance the current account deficit, particularly given its recent credit rating downgrades and the very real possibility of more to come."

Chris Williamson, chief economist at Markit, said the weaker pound could boost exports, by making it cheaper for foreign firms to buy British goods, which could help attract foreign investment.

But he added: "To achieve this we will also need to see business and investor confidence rise, and uncertainty to lift.

"Without such confidence, the current account situation, and the wider economy could clearly deteriorate further in coming months."

The unchanged growth figures are also unlikely to soothe concerns over the impact Brexit will have on the economy, with mounting warnings that it will tip the UK into recession.

Mr Archer believes growth will stagnate in the third quarter and possibly contract in the final three months of the year.

He is also pencilling in a cut in interest rates to 0.25% next month or in August, falling possibly as low as zero by the end of the year.

The ONS figures showed business investment in the first three months of 2016 was 0.8% lower than a year earlier.

Ratings agency Fitch said on Wednesday that investment would fall by 5% next year due to uncertainty over the impact of Brexit.

But the ONS figures showed some cheer for the economy, with households enjoying the fastest quarterly rise in real disposable income since 2001, up 2% between January and March, boosted by low inflation and rising wages.