External imbalances getting worse

The widening of the current account deficit to a record 5.4% of GDP in the second quarter put paid to any hopes of a rebalancing in the economy. The deterioration mainly reflected a deficit on the UK’s investment income balance, a sharp turn-around from the surpluses the UK has run for most of the past decade. If this is sustained, the adjustment in the trade balance will have to be even bigger to eradicate the UK’s imbalances. But with the euro-zone crisis continuing to weigh on export growth, this looks unlikely to happen in the near-term.