Britain more in thrall than ever to ‘kindness of strangers’

BRITAIN is more dependent on the “kindness of strangers” than ever after a record trade shortfall signalled more pain ahead for the plunging pound.

The surge in energy prices helped to widen the UK’S current account deficit – the gap between money flowing in and out of the country – to an all-time high of £52bn in the first quarter of 2022, according to the Office for National Statistics.

The current account deficit is when the value of imports of goods, services and investment income is greater than it exports. It is seen as a measure of an economy’s dependence on money from overseas to fund the deficit.

Economists, including Mark Carney, the former Bank of England governor, have warned the UK is reliant on the “kindness of strangers” as it has one of the largest current account deficits in the world. The current account deficit when excluding precious metals expanded to 7.1pc of GDP, up from 1.9pc in the previous quarter. The trade deficit widened from £10.3bn in the fourth quarter of 2021 to £26bn at the start of 2022 as imports rose and exports declined further.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the “huge deficit” is largely because of the surge in energy prices boosting the value of imports.

He warned that the shortfall means sterling would “remain very sensitive to global trends in risk appetite” as a rising current account deficit typically puts downward pressure on a currency.

The ONS cautioned that the figures were less reliable after recent tweaks to how data on EU imports is recorded.

However, Stephen Gallo, European head of currency strategy at BMO Capital Markets, said that the “underlying trend is accurate”, calling the figures an “alarming deterioration”.

It came as Anne-marie Trevelyan, Trade Secretary, promised to lead a “bonfire” of non-tariff trade barriers to help spur exports. She has put together a hit list of 100 “obstacles standing in our businesses’ way” and said removing the barriers could boost exports by more than £20bn. The list includes regulations in other countries that stop UK firms exporting goods to their markets.