Collapse in overseas income pushes gap between imports and exports in 2012 to £57.7bn, a shortfall of 3.7% of GDP

This article is more than 7 years old

This article is more than 7 years old

A collapse in overseas income has pushed the UK's 2012 current account deficit – the gap between imports and exports – spiralling to its worst level for more than 20 years, according to official figures.

The worsening situation in the eurozone helped Britain to a £57.7bn current account deficit, amounting to 3.7% of GDP, the biggest shortfall as a proportion of national income since 1989.

The Office for National Statistics said 2012 ended on a low note after Britain registered a £14bn deficit in the last quarter, coming on top of a £15bn deficit in the previous quarter.

Analysts warned that a long-running sequence of balance of payments deficits, which goes back to 1984, had worsened with few signs of an upturn.

The figures will prove a huge disappointment to the coalition government, and especially business secretary Vince Cable, who pledged to rebalance the economy away from consumer spending and banking towards exports.

A fall in the value of sterling by a quarter over the last four years was expected to boost exports and allow manufacturers to become a larger slice of the UK economy.

In separate figures, the ONS confirmed that GDP contracted 0.3% in the fourth quarter of 2012, compared with the previous three months, putting the UK on course for a triple-dip recession.

Samuel Tombs at Capital Economics, said: "The figures are a reminder of how much progress still needs to be made towards getting the economy back to a sustainable path – progress that might require a further drop in the pound."

While the export of goods has held up over the last year, imports have soared, especially of oil and gas, to leave a £27bn deficit in goods in the last quarter alone.

An overall deficit of £70.5bn was recorded with the EU in 2012, compared with a £43.6bn shortfall in 2011. Reflecting a decline in old colonial ties and weaker investment income from the US, the surplus with non-EU countries almost halved from £23.4bn in 2011 to £12.9bn last year.

A positive balance of £17bn in services offset some of the loss on goods, though earnings by UK banks on foreign loans, which is counted as income, have dived. Financial services exports have fallen from £52bn at their peak in 2008 to £44bn last year.

A collapse in sales to the eurozone was blamed for much of the higher than expected shortfalls in export income.

Phil Shaw, UK economist at fund manager Investec said persistent deficits undermined the strength of the UK economy and would be harder to turn around the longer it went on.

The immediate impact of balance of payments deficits was felt almost immediately in the 1960s when the pound was fixed in value against other currencies. But the need for UK businesses to sell pounds to buy foreign goods in their own currency stil puts pressure on the value of the pound.

Shaw said the impact was likely to be significant over the longer term, as UK firms found they had a diminishing number of assets to sell to buy foreign goods and services.

"When you are forced to sell assets to buy foreign goods it weakens your ability to earn money from UK assets. there simply are not as many as before. They are in foreign hands," he said.

"This means that barring another significant drop in the exchange rate it will become more and more difficult for the UK to get closer to a position of external balance."