Britain's hefty current account deficit with the rest of the world narrowed much more sharply than expected after a surge in exports in the three months to June, but a slowing global economy may make this hard to sustain. Living standards also picked up, as companies' spending on wages rose at the fastest rate since before the financial crisis, suggesting that the benefits of faster growth may be starting to be felt more widely.
The current account deficit - a recent source of concern for the Bank of England - fell to a two-year low of 3.6 percent of gross domestic product, after the country's trade deficit shrank to its smallest since 1998. Net exports were the biggest driver of overall GDP growth of 0.7 percent in the second quarter of the year, the Office for National Statistics said, in contrast to previous quarters where the country's recovery relied on domestic consumers.
Wednesday's figures mark a sharp turnaround from 2014, when Britain recorded its largest current account deficit on record at 5.1 percent of GDP despite being the fastest-growing country in the Group of Seven rich nations for a second year in a row. Sterling gained against the dollar after the balance of payments data, which showed a smaller deficit than all economists' forecasts in a Reuters poll. But slower growth in emerging markets, sterling strength and signs of falling exports in more recent monthly trade data and industry surveys raise concerns that the fall in the current account deficit may prove temporary.
"The UK recovery is progressing, but the economy remains unbalanced and our external position remains precarious," David Kern, chief economist at the British Chambers of Commerce, said. Other economists were less downbeat, saying Britain should benefit from recovery in the United States and euro zone, and was less exposed than many countries to emerging markets.
Britain achieved solid growth of 2.2 percent in 2013 and 2.9 percent in 2014, helping Prime Minister David Cameron's Conservatives win re-election in May. But Britain's recovery has still been slow by historic standards, with less of the catch-up that economists typically expect after a steep slump. Output is only 5.9 percent above its previous peak in early 2008, and adjusted for a growing population, it is just 0.6 percent higher.