Britain Posts Trade Deficit of $2.17 Billion

Britain on Tuesday reported another massive current account gap of 1.3 billion pounds ($2.17 billion) in August, but this was down about 40% from the record deficit in July that shocked financial markets.

The August balance-of-payments figure was at the lower end of expectations. But it was more ammunition for critics who say the Conservative government’s hike in interest rates from 7.5% to 12% since early June has been slow to choke a booming domestic demand for imported goods.

The July deficit on the current account, the widest measure of trade that includes so-called invisible transactions in banking and insurance, was 2.15 billion pounds ($3.6 billion).

For the first eight months of 1988, Britain was in the red by 9.22 billion pounds ($15.4 billion), compared to a government target of a 4-billion-pound ($6.68-billion) deficit for all of 1988. The current account measures imports and exports of goods as well as international payments for services such as banking, shipping and tourism.

Some economists fear a big deficit will undermine the government’s fight against inflation, which at 5.7% is already above the year-end target of 4%.

The finance minister, Chancellor of the Exchequer Nigel Lawson, has stressed that it will take time for the rise in borrowing costs to reduce imports and close the country’s trade gap.