City Fends off Balance of Payments Crisis

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Byline: DAN ATKINSON

BRITAIN is sucking in more than [pound]3 billion of imports a month, figures out this week will show, and only the City's skill at picking foreign investments is staving off a fullblown balance of payments crisis.

Aggressive cuts in interest rates and rising pay in the public sector are adding up to a bonanza for overseas firms - out of every extra [pound]1 spent by Britain's better-off consumers, half goes on imports.

Andrew Smithers of economics consultancy Smithers & Co said: 'The trade deficit has gone roaring up and we can stop it playing merry hell with sterling only by relying on the City which, in turn, is relying on a world financial boom that is coming apart at the seams.' In the second quarter, Britain's trade deficit in goods hit [pound]9.2 billion-from [pound]7.8 billion in the first quarter. But the big contributor, turning in a [pound]4.3 billion surplus, was income from investments abroad - both direct stakes in foreign plant and companies and investment in foreign shares, currencies and bonds. …