UK Current Account Deficit Narrows in the First Quarter as Growth Picks Up to 0.6 Percent
The UK’s external deficit narrowed sharply in the first quarter of 2026 as a jump in investment income outweighed a wider trade gap, while the economy expanded by an unrevised 0.6 percent. The combination points to a firmer start to the year than late 2025, but it also underlines Britain’s continued dependence on foreign capital inflows and the uneven nature of the recovery.
The underlying current account deficit, which excludes volatile trade in precious metals, narrowed to 15.1 billion pounds, or 1.9 percent of gross domestic product, in the first quarter, from 18.2 billion pounds, or 2.4 percent, in the final quarter of 2025, an improvement of 3.2 billion pounds. Including precious metals, the headline deficit narrowed by 5.0 billion pounds to 22.1 billion pounds, or 2.8 percent of GDP.
The improvement was led by the primary income account, which records earnings on cross-border investment. Its deficit narrowed by 8.0 billion pounds to 3.9 billion pounds, or 0.5 percent of GDP, as UK earnings on direct investment abroad rose. That more than offset a 5.1 billion pound widening of the total trade deficit to 7.7 billion pounds, as the goods deficit widened to 59.5 billion pounds and the services surplus eased to 51.8 billion pounds.
Separate national accounts data confirmed that real GDP grew by an unrevised 0.6 percent in the first quarter, following revised growth of 0.1 percent in the fourth quarter of 2025, down from a previous estimate of 0.2 percent. Output rose across all three main sectors: services, the largest part of the economy, grew 0.8 percent and made the main contribution, while production and construction each increased 0.2 percent. Nominal GDP rose 1.7 percent in the quarter and was 4.4 percent higher than a year earlier.
The growth was not uniformly positive for households. Real GDP per head rose 0.6 percent in the quarter and was 0.7 percent higher than a year earlier, but real household disposable income per head fell 0.8 percent, after rising 1.2 percent in the previous quarter. The household saving ratio dropped 0.7 percentage points to 8.9 percent, suggesting consumers supported spending partly by saving less.
The UK’s balance sheet with the rest of the world weakened, however. The net international investment liability position widened to 122.1 billion pounds at the end of March, from 105.6 billion pounds at the end of December, partly because sterling depreciation inflated the value of foreign-currency liabilities. The financial account recorded a net inflow of 7.2 billion pounds, the funding a persistent current account deficit requires.
Why it matters: For the Gulf, the UK is a major destination for sovereign-fund and private capital and a key trade and financial partner. A narrower external deficit and steady growth are modestly supportive for sterling, while the flagged sterling weakness in the investment position affects the local-currency value of GCC sterling holdings and the pricing of UK inbound investment. Britain remains a structural net borrower that relies on foreign inflows, a feature that keeps it sensitive to global risk appetite and to the relative pull of dollar and euro assets that Gulf investors weigh.
Outlook: Confirmation of 0.6 percent growth alongside a narrower external deficit points to a firmer first quarter than the prior one, but the wider trade gap and the reliance on financial inflows leave the external position exposed to sterling and global conditions. The path of Bank of England policy and the durability of investment income are the key variables ahead.
Sources: Office for National Statistics.
