UK's record current account deficit manageable ? So far, but.....

8/4/15

 UK's record current account deficit manageable ? So far, but.....

 "Bank warns overseas deficit could rattle market" , The Daily Telegraph , p.B4

 Up to this point, the UK's assets and currency have been remarkably unaffected by news that the current account deficit has reached a record deficit of £98 billion, 5.5% of GDP. The current account balance is a measure of the value of exports against the value of imports for goods and services, of net investment income returning to the UK from overseas against net investment income heading the other way, and capital transfers in each direction.

 

Actually, in percentage of GDP terms that first element (the trade deficit) is below recent the historic average: and with such low or even negative yields on offer in the Eurozone for example, who would be surprised to learn that foreign investors earn more on UK investments than their UK counterparts do overseas? The Bank of England's Financial Policy Committee says that the deficit can be financed so long as investors retain confidence in the UK and its fiscal policy. One might wonder how that confidence might be affected by a UK election result that might see the instalment of a politically hamstrung or left-leaning coalition, or even a minority government.

"Hands off the Fed ! " .....but whisper it quietly

 "Wall St seeks to stall push for Fed audit" , The Financial Times, p.8

 
The Republican Party, who control both houses of Congress, are mounting a campaign to subject the Federal Reserve to congressional "oversight"  --  for which some could read "allowing the politicians to exert direct influence on monetary policy". For some time in the larger democratic nations this has been held to be a bad idea, and the independence of the central banks to be essential. Unsurprisingly, Wall St is unhappy but afraid to speak out too loudly for fear of upsetting Republican top brass whom they may need to support their own legislative agenda. The campaign has little chance of success apparently but may promote a move to greater transparency in Fed decision-making, which may not be an entirely bad thing. The same might be said for a little greater transparency regarding the relationship between Wall St. and politicians