UK's current account deficit narrowed to GBP 7.6 billion in the fourth quarter of 2008 from a revised deficit of GBP 8.2 billion in the previous quarter, the Office for National Statistics said Friday. Economists had expected deficit to contract to GBP 5.9 billion, while the third quarter shortfall was revised from a GBP 7.7 billion deficit.

The fourth quarter deficit was equivalent to minus 2.1% of GDP compared with minus 2.3% in the previous quarter.

The ONS said the lower current account deficit was a result of a higher surplus on trade in services, together with lower deficits on trade in goods and on current transfers, which outweighed a fall in the surplus on income.

The surplus on trade in services increased to an all time high of GBP 14.7 billion in the fourth quarter. This increase was mainly due to higher exports of financial services. The deficit on trade in goods was GBP 22.7 billion, down GBP 0.9 billion from the third quarter, while the deficit on current transfers was GBP 2.7 billion, GBP 0.6 billion lower than in the previous quarter.

The surplus of the income account fell to GBP 3.1 billion in the fourth quarter from GBP 8.1 billion in the previous quarter. Earnings on direct investment abroad fell GBP 11.9 billion to GBP 8.3 billion, while direct investment in the UK yielded net losses for the first time on record of GBP 1.8 billion, having recorded earnings of GBP 2.6 billion in the previous quarter, the ONS said.

For the full year, UK had a current account deficit of GBP 24.5 billion, compared with a deficit of GBP 40.3 billion in 2007. the deficit narrowed mainly due to higher surpluses recorded on investment income and trade in services.

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