Date: Fri Dec 21 2007 - 13:16:47 EST
Black hole in Britain's public finances deepens [by] Angela Balakrishnan Guardian Unlimited, Thursday December 20 2007 The black hole in Britain's public finances deepened today after official figures showed the current account gap hit a record high, as the credit crunch knocked tax receipts from the City. Separate figures also revealed the first year-on-year fall on mortgage lending in more than two years, as the housing market continued to slow. In the three months to September, the current account gap leapt to all-time high of £20bn, equivalent to 5.7% of UK growth, the Office for National Statistics said. Deficits from previous quarters were upwardly revised as well. The sharp deterioration was mainly driven by a weak contribution from financial services. The City has fuelled a large part of British economic growth in recent years, helping to plug the hole in public finances. However, the global credit crunch has seen many firms write off huge losses in recent months. An increasing deficit in the UK's trade in goods also contributed to the hefty rise. Public sector net borrowing also soared to a record high of £11.208bn in November, as government spending outstripped receipts. Economists warned that the figure is now likely to overshoot chancellor Alistair Darling's forecasts by at least £5bn this year. The huge jump in the current account deficit will put further pressure on the pound, with analysts saying Britain's trade position is now as dire as that in the United States. Meanwhile, separate data from the ONS showed that economic growth in the third quarter of this year was unrevised at 0.7%, but the annual rate ticked up to 3.3% from 3.2% because of changes to last year's figures. However, a breakdown revealed strains beneath the solid headline numbers. While consumer spending rose by 1.1% in the third quarter - the fastest rate for over a year, the saving ratio fell to 3.4% from 4%. Growth in Britain's dominant service sector slipped down slightly as well. Analysts said the policymakers would be concerned about risks to growth in the coming months as the turmoil in financial markets and tightening credit conditions take hold. New figures today from the Council of Mortgage lenders showed that this was continuing to feed the downturn in the housing market. Mortgage lending saw the first year-on-year fall for more than two years as lending last month dropped 8% to £30.7bn. Michael Coogan, CML director general said he expected the trend to continue into next year and called for more support from central banks to help increase liquidity in the money markets. Analysts said that today's data presented a bleak outlook for the economy. "This morning's flurry of UK data paints a worrying picture of a dangerously unbalanced economy," said Jonathan Loynes at Capital Economics. "Overall, a pretty ugly picture, supporting our view that the coming economic slowdown will be a prolonged period of adjustment rather than a short pause for breath like that seen in 2005."
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