Similarly, he predicts the translation effect of weaker sterling will have a “powerful” effect on the primary income account balance, causing it to “fall sharply this year.”
However, Brexit negotiations will prevent the deficit from falling too far, as consumer confidence takes a hit and households and businesses begin saving more.
“As the UK economy cools, the budget deficit looks certain to increase,” added Hilliard.
“This will partially offset the rising surplus of the private sector, thereby limiting the reduction in the current account deficit; that is why we see the biggest reduction occurring this year.
“In the following years, the steady increase in the budget deficit is likely to offset most of the increase in the private sector surplus, leading to smaller further reductions in the current account deficit.”
