In World Economy News 01/07/2016
Business investment in the U.K. dipped in the first quarter, according to official statistics Thursday, adding to signs the economy was losing steam even before the U.K. voted to leave the European Union.
The Office for National Statistics said that business investment in the first quarter was 0.6% lower than it was in the final three months of 2015 and 0.8% lower than it was a year earlier.
The U.K. voted to leave the EU in a referendum Thursday, a shock result that has caused turmoil in financial markets and triggered political upheaval.
Economists expect the U.K. economy to slow sharply in the coming months, as uncertainty over the U.K.’s future relationship with its largest trading partner stunts trade and investment and dents consumer and business confidence.
The ONS confirmed the economy expanded 0.4% in the first quarter in its final estimate of economic growth for the period, although it added that on an annualized basis growth was slightly faster than earlier estimates, at 1.8% compared with previous estimate of 1.4%. Growth was driven by services sector output, household spending and trade, the ONS said.
The ONS said Thursday that the U.K.’s current-account deficit with the rest of the world narrowed in the first quarter, although it remains large relative to the size of the economy. A current-account deficit means the U.K. earns less from overseas than it spends at home and must bridge the gap by borrowing from abroad and attracting foreign investment.
The deficit narrowed to 32.6 billion pounds ($43.38 billion) in the first quarter, from GBP34 billion in the fourth, the ONS said. That equates to 6.9% of the U.K.’s annual output, one of the largest deficits on record.
The size of the U.K.’s current account deficit is a potential vulnerability for the economy in the wake of the Brexit vote, according to economists and the Bank of England, because financing the gap may become harder if foreign investors decide the U.K.’s prospects have deteriorated. In an extreme case, policy makers may need to raise interest rates to attract foreign capital and depress domestic spending to reduce the shortfall.
Foreign direct investment into the U.K. was GBP38.3 billion in the first quarter, slightly lower than the GBP39.6 billion recorded a year earlier, the ONS said.
Source: Dow Jones
