Missing billions halve Britain's trading deficit

Britain's balance of payments was in the red last year by less than half as much as first estimated. Revised figures yesterday showed a shortfall of pounds 2.9bn, compared with the first estimate of pounds 6.7bn, thanks to the discovery of billions of pounds worth of extra income from UK investments overseas.

The balance improved further in the first quarter of this year, mainly due to a fall in Britain's payments to the EU from their abnormally high level in the last three months of 1995. The deficit fell by pounds 151m to below pounds 1.1bn.

The breathtaking scale of the statisticians' improvements to last year's figures helped push sterling half a pfennig higher against the mark. It closed at DM2.35.

Simon Briscoe, UK economist at Nikko Europe, said: ''This news pushes any worries about the trade account beyond the horizon of the election."

According to the new figures, Britain's net investment income reached a record pounds 9.6bn in 1995, and improved by pounds 200m to pounds 2.9bn in the first quarter of 1996. Official statisticians and the Bank of England will be investigating the scale of revisions to the figures, which are drawn from a banks' survey.

City analysts were wary about the good news. "There is no guarantee these figures will prove any more definitive than the last," Ian Shepherdson at HSBC Markets said. However, investment income was clearly on an upward trend. In addition, the net amount of transfers overseas - dominated by British payments to the EU - retreated from its unusually high level of pounds 2.1bn at the end of last year to pounds 1.4bn.

These two improvements made up for a disappointing decline in the surplus on trade in services. It slipped to pounds 910m in January-March from pounds 1.4bn in the fourth quarter of 1995.

Two trends accounted for this. There was a small fall in the balance earned by financial services and a deterioration in travel. There was an increase in trips abroad by both personal and business travellers.

Trade in goods slipped further into the red, reaching pounds 3.53bn.

Separate figures yesterday showed that the economy grew 0.4 per cent in the first quarter, the same as the original estimate.

But the year-on-year growth rate was revised down to 1.9 per cent because of a small rise in the figure for GDP in the first quarter of 1995.

The Office for National Statistics also reported a different mix of growth compared with the previous estimates. It revised up consumer spending growth to 0.9 from 0.8 per cent, leaving it the biggest quarterly increase since the end of 1993. The explanation was revealed by growth in real personal disposable income, or after-tax income adjusted for inflation. It was up a robust 4 per cent in the year to the first quarter.

Investment was also upgraded, rising 1.5 per cent rather than 0.7 per cent.