The UK economy remains one of the strongest among the G7 countries, but its output remains highly unbalanced and vulnerable to financial shocks.
The third reading of the UK gross domestic product (GDP) growth in the third quarter is expected to show the economy was growing at 0.5% quarter-on-quarter, and 2.3% when compared with the same quarter a year ago, which would be the fastest pace of annual growth from among the G7 countries.
Britain's economy has been driven primarily by the robust services sector and domestic spending, while production and trade balance remain the weakest, and most vulnerable, segments of the economy.
The third estimate of GDP will also include figures on the balance of payments, which are expected to show the current account deficit stretching to £21.5 billion in the third quarter, up from an estimated £16.8 billion in the preceding quarter.
The second reading of the UK Q3 GDP showed net trade had the most negative contribution to growth since records began in 1997, at -1.5%. Further data showed trade deficit in goods was £35.3 billion, reflecting a 5.5% increase in imports, which the ONS said was the biggest rise since 2006.
The official statisticians did not provide any anecdotal evidence as to why imports rose so much, but stronger sterling relative to euro currency, and other emerging market currencies, could partially explain the drive in imports to the UK.
The latest ONS data showed imports of goods from EU and non-EU countries each rose by £1.2 billion between September and October, which is a 7.8% increase from countries outside the EU, and a 6.4% rise in imports from the EU countries.
Concerns about persistent deficit
The Bank of England (BoE) raised concerns regarding the persistently wide gap in the balance of payments in their December Financial Stability Report, warning that the UK "large current account deficit remains a risk for financial stability", also adding that it remained "high by historical and international standards", while household indebtedness was "still high".
BoE also warned: "A persistent current account deficit could lead to a sudden adjustment in capital flows or depreciation of the exchange rate, with adverse consequences for UK financial stability."
Over-reliance on domestic spending creates hurdles to the BoE's path to monetary normalcy. While the economy has been one of the strongest among the G7 countries, domestic wage growth remains too weak for the central bank to gain enough confidence to begin increasing interest rates, partly given the high level of household debt, and over-inflated house prices.
BoE Deputy Governor Jon Cunliffe recently said that wages in the UK needed to pick up more aggressively to help household budget relief, and at the same time help consumer price inflation return back to the 2% target in the medium term.
"Wages are immensely important for two reasons ... One because the forecast we have of what happens in the economy is dependent in a large part on consumers ... and consumers can finance some of that consumption through savings, but they really need that increase in pay to do it ... It's also important because we need pay pressure to push inflation back up to two per cent," Cunliffe told local media earlier in December.
Disclaimer: The information provided by WBP Online come from its Reporters and Foreign Correspondents and its third party suppliers ("Information Providers"). WBP Online believes its text services to be reliable, but accuracy is not warranted or guaranteed. This includes facts, views, opinions and recommendations of individuals and organizations deemed of interest.
Neither WBP Online nor Information Providers guarantees the accuracy, completeness or timeliness of, or otherwise endorses, these views, opinions or recommendations, gives investment advice, or advocates the purchase or sale of any security or investment.