Could the UK face a sterling crisis this year?

UK could be heading for a 'sterling crisis': Pro

Singled out by the International Monetary Fund last year as being the fastest-growing economy in the G-7, the U.K. still faces criticism that its high current account deficit could push it toward a currency crisis.

Carl Weinberg, chief economist at High Frequency Economics, told CNBC this week that sterling risked a "very big move of very dramatic proportions" as a result of this deficit.

"I think we are at risk of seeing the world just have too many pounds out there to absorb. And sterling is not the world's reserve currency, people don't want to hold it without limit," he said, adding that a crucial moment for the U.K. currency could come "very soon."

The U.K.'s current account deficit was 6.0 percent of gross domestic product (GDP) in the third quarter of 2014, according to the country's Office for National Statistics (ONS). This was a rise from 5.5 percent in the previous quarter and the ONS highlighted a fall in receipts for foreign direct investment, and a rise in payments to foreign direct investors, as an explanation. The limit set by European Union – from which the U.K. has exempted itself – is a deficit of 3 percent of GDP and the current account deficit in the U.S. stood at 2.3 percent of GDP for the last two quarters.

"The balance of payments right now is appalling," Weinberg said. "Every time it's been above 4.5 percent we've had a sterling crash," he added.

Sterling is down 11 percent against the U.S. dollar since June last year, after gaining 15 percent against the greenback between July 2013 and July 2014.

The British pound gained in the year to July 2014 as stellar economic data led many currency speculators to believe the country was on the right track for an interest rate hike. However, sterling fell back after the Bank of England quashed those expectations, incoming data weakened, a referendum in Scotland unsettled markets and national elections in May this year began to loom.

Other economists have told CNBC that they're not as pessimistic about sterling as Weinberg, even though they agreed that a current account deficit of more than 4.5 percent was unsustainable in the medium- to longer-term, especially given the pound is not a global reserve currency.

"The story seems to be that the U.K. has made far worse returns on its investments in the European Union than foreign investors have made on their investments in the U.K." James Knightley, U.K. economist at ING, told CNBC via email.

He said that this was not necessarily negative, and could simply be because the U.K. was a much stronger economy than the rest of Europe.

"U.K. companies have been far more profitable than European companies...the fact that the U.K. has been a more successful economy than the euro zone isn't a reason for the pound to sell off. I think the bigger risk for sterling is political uncertainty," he said.

Meanwhile, Robert Wood, chief U.K. economist at Berenberg, said the current account deficit could correct itself without sterling showing any major movements whatsoever.

"There is little sense in worrying that this current account deficit will cause a crisis tomorrow. It does not suggest the U.K.'s recovery is unsustainable: the picture is different from the 1980s boom," he told CNBC via email.

"Importantly, the UK's balance sheet is not in bad shape...the trade deficit has actually fallen by a third since the pre-crisis peak despite one of the U.K.'s prime exporting sectors, financial services, facing a tough time."

Jonathan Portes, the director of the U.K.'s National Institute of Economic and Social Research, was another Weinberg skeptic, telling CNBC via email that a "sterling crisis" was unlikely, especially in Weinberg's "rather apocalyptic" terms.

Steve Davies, education director at U.K. think tank The Institute for Economic Affairs, added that a currency "correction" might occur, but said he was not banking on one at any point in the near future.

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