Britain’s CAD highest since 1989 as foreign income slumps

Britain's current account deficit last year ballooned to its highest level since 1989 as the income earned on foreign investments slumped, official figures released on Friday showed.

The Office for National Statistics (ONS) reported that the current account deficit in the final quarter came in at 5.4 per cent of GDP. That was down slightly from the 5.6 per cent record high in the third quarter but it was still higher than analysts had expected and it took the deficit for 2013 to £71.1 billion. That equates to 4.4 per cent of GDP and is the largest gap since the Lawson boom of the late 1980s.

The ONS's breakdown of the balance of payments showed that the trade deficit actually contracted in the last quarter, but this was offset by a fall in income earned on investments abroad relative to the returns paid on overseas investments in Britain.

Over 2013 as a whole, the investment income deficit jumped to £17 billion, from £3.7 billion the previous year.

The ONS also said that the household saving ratio dipped sharply in the final quarter to  5 per cent, from 5.6 per cent in the previous three months.

Analysts said that economic growth in 2013, which the ONS revised down from 1.8 to 1.7 per cent, had been financed by households saving less of their disposable income.

However, analysts also predicted that falling inflation and rising pay should bring improvement this year.

Others said there were tentative signs of a rebalancing away from consumption towards business investment and exports.