US deficit reaches record $48bn

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The Independent Online
America's balance of payments was in the red by a record amount in the third quarter. Yet financial markets were unruffled. Although the dollar dipped briefly, Wall Street climbed in morning trading and Treasury bond prices barely fell.

The deficit on trade in goods and services and investment income widened to $47.96bn from $40.21bn in the second quarter. This earlier figure was revised up by more than $1bn from the initial estimate. The shortfall on trade in goods alone jumped to $51.59bn from $46.99bn, putting a figure on recent anecdotal evidence from exporters that the strength of the dollar has hurt their overseas sales.

Yesterday's figures also showed that net foreign investment in US Treasury bonds reached a record $42bn during the quarter, while overseas purchases of other securities rose to $33bn. Purchases of US assets by foreigners climbed more than American purchases of overseas assets. Although this underlined the potential vulnerability of US share prices, the Dow Jones index managed a nine-point gain on the day to end at 6,473. The FTSE 100 index in London closed more than 24 points up at 4,035.7 in very quiet trading.

The pound's index against a range of other currencies was unchanged at 93.2 yesterday evening, reflecting the majority view that the Chancellor of the Exchequer, Kenneth Clarke, will leave interest rates unchanged after his meeting this morning with the Governor of the Bank of England.

Eddie George has said base rates will need to rise in time, but comments last week reassured the City that he would not push Mr Clarke too hard before Christmas.

The Chartered Institute of Marketing yesterday urged Mr Clarke to raise interest rates again to ensure the economy does not return to the rollercoaster ride of the 1980s.

The CIM said the Government needed to take "pre-emptive action".