Foreign-owned oil cos, insurance payouts widen UK deficit to £10.2bn

Foreign-owned oil cos, insurance payouts widen UK deficit to £10.2bn

	Published : Fri, 23 Dec 2005 11:20 By : Richard Owen Print this Story

LONDON: The UK’s current account deficit in third quarter of 2005 soared to a record high of £10.2bn on rising oil imports, insurance payouts for Hurricane Katrina and higher dividend payments to foreign investors.

While releasing the balance of payments data yesterday the Office for National Statistics (ONS) said the deficit was the biggest since it started maintaining the records in 1955. The inflow-outflow difference had widened to a huge chasm from £1.4bn in the April-June quarter to £10.2bn.

A large portion of this gap was caused by rising dividend payments to foreign owned UK companies, especially FTSE100 oil companies whose profits surged to new highs along with oil prices. Earnings of foreign investors in the UK in the third quarter totalled £5bn, the ONS said.

The second factor was the fire which forced the North Sea to shut down oil production leading to a loss of about £1.5bn. The insurance sector also contributed to the deficit with its own setback of £2.1bn as insurance payouts to victims of Hurricane Katrina.

The deficit represents a 3.4 percent of the GDP. The ONS figures also mentioned a £17bn deficit (another record) in the UK’s goods trade during the third quarter.

The ONS figures sent the pound tumbling to a two-week low against the dollar to $1.736.

Analysts and statisticians believe the fourth quarter would show a different picture of the country’s financial health as many of the factors that contributed to the deficit are one-off and not likely to be repeated. They point to the average deficit of the previous three quarters which had been steady and represented about 2 percent of the UK’s GDP.

The GDP growth rate remained unchanged at 0.4 percent in the third quarter, according to the ONS figures.

Many economists tend to agree with analysts who said the Bank of England might now be persuaded to slash borrowing cost in the next 2 - 3 months. The BoE’s interest setting committee is likely to consider cutting base rate by another 25 basis point as they did in August this year.