Current account deficit cut to 667m pounds

RECORD income from investments helped Britain record its lowest current account deficit for seven years in the first quarter of 1994, alleviating fears that recovery might soon be aborted by a balance of payments crisis, writes Robert Chote.

Separate figures also showed that the economy grew 2.9 per cent in the first quarter compared with the previous estimate of 2.6 per cent. This suggests the economy faced April's tax increases with more momentum behind it than at first appeared the case.

The current account deficit fell to pounds 667m in the first quarter of the year, from pounds 2,054m in the previous quarter, according to the Central Statistical Office.

Interest, profits and dividends contributed a surplus of pounds 2,011m, nearly pounds 900m more than in the previous quarter. In part this was the result of higher earnings by overseas subsidiaries of British banks.

The surplus of trade in services, including tourism, transport, banking and insurance, also improved slightly. The figures show that British investors sold more than pounds 32bn of overseas securities in the first quarter, almost reversing purchases of pounds 37bn in the previous quarter. But the net value of Britain's overseas assets rose from pounds 22.7bn at the end of last year to pounds 42.1bn at the end of March.

Ian Shepherdson, of HSBC Greenwell, said the figures were astonishingly good, although he cautioned that future revisions might take off some of the shine.

The revisions to the figures for economic growth prompted economists at broker James Capel to raise their forecast for growth this year from 3.25 to 3.5 per cent, above the 2.75 per cent forecast the Treasury will unveil next week.

The figures also showed that growth of 0.6 per cent in consumer spending in the first quarter of the year was paid for with a rise in employment income boosted by bonuses.