BOE Warns Large Current Account Deficit Could Threaten Economy

The UK’s large current account deficit could cause financial markets to turn against the British economy in a time of stress, the Bank of England has said.

The Bank’s financial policy committee (FPC) discussed the current account deficit at its most recent meeting in March and decided to keep it under close review, the meeting minutes showed.

The current account deficit, which reflects the gap between money paid out by the UK and money brought in, was more than half as big as expected for the fourth quarter last year.

The £22bn deficit compared with £14bn forecast by economists and was only slightly less than the record £22.8bn seen in the third quarter of 2014.

The FPC, whose job is to monitor and act on threats to UK financial stability, said there had been no big increase in domestic credit to fund the deficit and that if there was greater confidence in the economy the deficit would be easier to finance.

But the minutes added: “The current account deficit was large and could, in adverse circumstances, trigger a deterioration in market sentiment towards the United Kingdom … The committee agreed to keep their assessment of this risk under close review and would monitor the maturity and liquidity of the financing of the deficit.”

via The Guardian

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza