British Current Account Deficit Hits a Record

Britain’s deficit in its dealings with the rest of the world widened to a record $4.45 billion (2.43 billion pounds) in October, the government reported Friday, prompting authorities to hike interest rates once again to try to check a consumer spending boom.

News of the massive current account deficit, which was twice as bad as economists had expected and four times larger than September’s shortfall, sent share prices tumbling on London’s stock exchange.

The Financial Times-Stock Exchange index of 100 blue chips ended 38.3 points down at 1,794.7 after skidding more than 50 points earlier in the session. Traders said the selloff was one of the worst since the end of last year’s Crash.

The Department of Trade and Industry said the gap on merchandise trade, excluding so-called invisible earnings from banking and insurance, was $5.36 billion (2.93 billion pounds), compared to September’s $1.99 billion (1.09 billion).

“These figures are frankly appalling. It’s a very bad day for Britain,” said Labor Party trade spokesman Bryan Gould.

Base Rates at 13%

The Bank of England quickly raised its money market lending rate a full percentage point to 13% in an effort to slow the consumer spending spree that has sucked in a rising volume of imports.

Commercial banks immediately took their base lending rates up to 13%, and lenders predicted that home mortgage rates also were likely to go up later.

Britain’s Finance Minister Nigel Lawson, whose tax-cutting policies have been cited as a cause of the spending surge, called the record monthly shortfall “a slightly freak figure.”

He conceded that imports were still rising strongly--they were up 12%--but said it would be more telling to average October’s figures with September’s modest current account deficit of $1.08 billion (594 million pounds).

The previous record current account deficit was $3.93 billion (2.15 billion pounds) in July.

Lawson said the interest-rate hike demonstrated Prime Minister Margaret Thatcher’s determination to keep a lid on inflation, now running at a three-year high of 6.4%.

But economists said the likely rise in mortgages could lead to demands for more wages and drive inflation higher.

The interest-rate increase was the ninth since June, when base rates were down at 7.5%.