Wednesday, March 27, 2013

Sharp Increase In British CA Deficit

The British current account deficit rose sharply in 2012, from £20.2 billion in 2011 to £57.7 billion in 2012, reflecting both a bigger trade deficit and that Britain's  factor income surplus was nearly wiped out. In the fourth quarter alone, the deficit increased to £14 billion, from £5.3 billion in Q4 2011.

At least three points can be made of this. One is that, just like the high inflation rate it indicates that domestic demand isn't that weak, it's just that it has only resulted in a higher external deficit and inflation. Another is that   the sharp drop in the factor income surplus indicates that national income is even weaker than GDP. And finally, this is another indication that the pound was significantly overvalued last year.


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