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UK narrows current account deficit after major data error

Published 06/12/2016, 18:12
© Reuters. File photo of gold bullion is displayed at Hatton Garden Metals precious metal dealers in London

By David Milliken

LONDON (Reuters) - Britain appears to have relied slightly less on the "kindness of strangers" before the Brexit vote, after its statistics agency uncovered major errors in trade data that meant the current account deficit was narrower than first calculated.

Bank of England Governor Mark Carney used the phrase in the run-up to June's referendum on European Union membership, highlighting how Britain, to balance its books, needs tens of billions of pounds of foreign finance a year that could be placed in jeopardy.

After the Office for National Statistics on Tuesday revised down the gap to 6.0 percent of gross domestic product from 7.0 percent, it turns out Britain no longer chalked up a record deficit in the final three months of 2015. The downward revision continued into 2016.

However, the ONS painted a less welcoming picture of foreign transactions since the Brexit decision, widening the trade deficit in the three months to the end of September from an initial 11.1 billion pounds ($14.1 billion) to a record 17.0 billion pounds.

Trade in goods and services is the largest component of a country's current account balance.

"It's a difficult area of the economy to measure, in fairness to the ONS, but these are big revisions and you get this unease in drawing firm conclusions on the external position of the UK," Investec economist Philip Shaw said.

The current account deficit for 2015, while cut from an earlier 5.4 percent of GDP, was still the largest on record at 5.0 percent. The gap for the second quarter of 2016 was revised down to 5.4 percent from 5.9 percent.

Former BoE deputy governor Charles Bean said in a report earlier this year that many UK statistics were "deficient" and that the ONS needed to improve its capabilities.

The agency said revisions were due to a "processing error" in how it factored in trade in gold, part of a category known as 'erratics' - which also includes gems and aircraft - that can sometimes distort monthly trade figures due unpredictable flows.

"Because the 'erratics' series is volatile, a total trade series that excludes erratics may provide a better guide to the emerging trade picture," the ONS said.

The error affected trade and current account data from January 2015 to September 2016 though not headline GDP.

© Reuters. File photo of gold bullion is displayed at Hatton Garden Metals precious metal dealers in London

($1 = 0.7865 pounds)

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