UK economy flat, current account gap widens

Britain's current account deficit widened to its largest in nearly a year in the second quarter of this year and official statisticians said they had been underestimating the size of the economy.

The Office for National Statistics (ONS) said gross domestic product (GDP) was unchanged from the first quarter but rose 1.5 per cent on the year, revised up from the previous estimate of 1.4 per cent. The current account gap widened more than expected to £10.987 billion in the second quarter from £5.492 billion in the first quarter, its biggest since the third quarter of last year and equating to three per cent of GDP.

The ONS said it had revised its GDP figures back to 1961 to reflect improved methodology for recording financial services. Those revisions added £19.5 billion to 2007 GDP and could on their own reduce the debt to GDP ratio by around half a percentage point.

That could give the government more leeway on its expenditure plan against its fiscal rules. However, public borrowing already looks like overshooting government forecasts by some margin.

"The biggest focus is on the revisions which suggest either a bigger output gap that needs to be closed or an economy that had a higher potential growth rate," said Alan Clarke, an economist at BNP Paribas. The main reason for the widening in the current account deficit was higher interest payments from UK securities dealers and lower losses recorded by foreign banks with operations in Britain.