By Julia Kollewe
LONDON (MktNews) - The UK current account deficit is likely to have widened in the fourth quarter because of a deterioration in the trade deficit, analysts said Friday.
The median forecast of a survey conducted by Market News International sees the current account deficit in the fourth quarter widening to Stg3.6 billion from Stg3.173 billion in the third quarter.
The current account deficit narrowed slightly in the third quarter, mainly because of an improvement in the investment income balance while the deficit on trade in goods and services widened.
Forecasts for the fourth quarter range from deficits between Stg3.0 billion and Stg4.8 billion.
The current account deficit is likely to have widened in the fourth quarter because of a worsening in the trade deficit which is already known, as well as a likely smaller surplus in investment income.
Monthly trade data during Q4 indicated that the UK's trade deficit in goods and services totalled Stg5.1 billion, compared with Stg4.729 billion in Q3.
Analysts also said that the large surplus in investment income during Q3 is unlikely to be repeated given the worsening global outlook.
"With slowing global growth, the risk to investment income flows must be to the downside," said Geoffrey Dicks, senior UK economist at RBS.
Philip Shaw, chief economist at Investec, agreed. "A surge in investment income during Q3 seems unlikely to be repeated while we are factoring in a smaller deficit on the transfers account following a blip in Q3."
Analysts said a Q4 deficit of Stg3.6 billion is equivalent to 1.5% of GDP. A shortfall of Stg3.6 billion in Q4 would result in a gap of Stg13.9 billion for 2000 as a whole.
Shaw noted that while this would represent the widest annual deficit since 1990, it would still only make up a small percentage of GDP and therefore not "present a barrier to domestic demand taking up the slack left by slower export growth in a period of softer global demand."
The balance of payments data will be released on Monday, March 26, at 8:30 GMT.