George Osborne was given a pre-Christmas reality check yesterday as he faced the prospect of overshooting his borrowing target.
Economists described the news that Britain’s current account deficit with the rest of the world had hit a 24-year high as “truly dire”.
It came as the trade deficit in the third quarter widened, UK earnings on foreign investments fell, and foreign income on UK investments increased.
Meanwhile, public sector borrowing rose by almost £1 billion in November, compared to a year earlier, and underlying net debt struck a new monthly record.
On a brighter note, the barrage of official data showed that the UK economy grew more strongly than previously thought this year. Gross domestic product (GDP) readings for the first and second quarters were revised upwards while the figure of 0.8 per cent for the third quarter was left unchanged.
The revisions mean GDP is closer to its pre-recession peak than previously thought.
But Samuel Tombs, UK economist at consultancy Capital Economics, said the figures sowed some doubt about the sustainability of the recovery.
“While the second estimate of quarterly GDP growth of 0.8 per cent in the third quarter was unrevised, the sources of that growth continue to cause some alarm,” he noted.
“The economy’s growth spurt seems to be exacerbating existing imbalances in the economy, rather than helping them to heal.”
Tombs said the public finance figures also made for “somewhat gloomy reading”, suggesting borrowing could be on course to overshoot the Office for Budget Responsibility’s latest forecast of £111bn for the 2013-14 fiscal year by around £1bn.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “The current account data for the third quarter of 2013 are truly dire, showing the largest shortfall since the third quarter of 1989.
“Recent trade data for the UK has been undeniably disappointing; and, looking ahead, it is hard seeing net trade making a significant positive contribution to UK growth anytime soon although the hope has to be that exports will increasingly benefit from global growth gradually picking up over the coming months.”
Just ahead of yesterday’s slew of data, ratings agency Standard & Poor’s affirmed Britain’s triple-A credit rating but kept a negative outlook, saying that the country would be vulnerable to a downgrade if growth was not sustained. Rival agencies Moody’s and Fitch both downgraded Britain from AAA earlier this year.
A Treasury spokesman said: “Today’s data show that the recovery has been stronger than previously thought and that the government’s long-term economic plan is working.
“But risks remain and the job is not done, so the government will go on taking the difficult decisions needed to deliver a responsible recovery for all.”
The Office for National Statistics said overall investment rose by £800 million to £53.6bn in the third quarter compared with the previous three months, though this has been largely flat over the last four quarters, ranging between £52bn and £54bn.