UK current account deficit narrows, helped by global recovery

* Current account gap below all Reuters poll forecasts

* Q4 GDP stays at +0.4 pct, ONS hikes 2017 GDP to +1.8 pct

* Savings (Shenzhen: 300056.SZ - news) ratio in 2017 hits new record low

* Separate data shows weak picture for housing market

(Adds comments from economists, GfK (Swiss: GFK.SW - news) survey)

By William Schomberg and Alistair Smout

LONDON, March 29 (Reuters) - Britain's current account

deficit fell sharply last year, official data showed on

Thursday, potentially easing concerns about its reliance on

foreign investors to fund itself as Brexit nears.

The Office for National Statistics also said Britain's

economy grew at its slowest pace in five years in 2017, leaving

it the weakest among Group of Seven countries as the decision to

leave the European Union pushed up inflation and weighed on

consumer spending.

However, there were some more promising signs for 2018 as

the dominant services sector picked up a bit in January and

economists said they expected that an inflation hit to consumers

would ease this year.

The current account deficit stood at 18.4 billion pounds

($25.9 billion) in the fourth quarter, below all forecasts in a

Reuters poll of economists, and the shortfall in the third

quarter was revised down sharply.

That left the 2017 deficit at 4.1 percent of GDP, the

smallest since 2011 and much lower than a record 5.8 percent in

2016 as the global economic recovery, and the weak value of the

pound, boosted earnings on British investment abroad.

"While still too high for comfort, this is a very welcome

reduction given that the elevated deficit is a potential source

of vulnerability for the UK economy – particularly if there was

any major loss of investor confidence in the UK," Howard Archer,

an economist with EY Item Club, a forecasting group, said.

Victoria Clarke, at Investec (LSE: INVP.L - news) , said it was too early to say

the deficit would improve steadily.

Bank of England Governor Mark Carney has said Britain's

balance of payments shortfall leaves it reliant on the "kindness

of strangers".

The country's official budget forecasters expect the gap to

fall only slowly and they warned this month that the confidence

of overseas investors could be damaged without a smooth Brexit.

SLOWDOWN

The ONS confirmed gross domestic product grew 0.4 percent on

the quarter - slowing from 0.5 percent in the third quarter -

and 1.4 percent compared with the last three months of 2016.

For 2017, the ONS edged up its economic growth estimate to

1.8 percent but that was still the slowest since 2012.

The ONS said disposable household incomes, adjusted for

inflation, only inched up 0.1 percent in the fourth quarter and

household spending in 2017 grew at the weakest pace since 2011.

Last year's savings ratio was the lowest on record at 4.9

percent of gross disposable income. The ONS said households were

net borrowers for the first time since records began in 1987.

But there are signs the squeeze on households is easing.

Inflation appears to have peaked and wage growth has picked up,

helping a consumer confidence survey by opinion poll firm GfK to

hit a 10-month high in March.

"The GfK survey suggests that consumers see some light

appearing at the end of the tunnel in the form of a revival in

spending power," Andrew Goodwin, an economist at Oxford

Economics, said.

The BoE has signalled it intends to raise interest rates

again soon, having increased them for the first time in a decade

in November. It believes Britain's economy, with its weak

productivity growth record, will generate excessive inflation

pressure with only modest growth.

Separate data showed Britain's housing market remained soft,

reflecting the financial squeeze on many households.

The BoE said the number of mortgages approved for house

purchase fell more than expected in February.

Mortgage lender Nationwide said house prices in Britain rose

at the slowest pace in seven months in March.

($1 = 0.7115 pounds)

(Additional reporting by Andy Bruce and Elizabeth Burden;

graphic by Andy Bruce

Editing by Richard Balmforth

Writing by William Schomberg; editing by John Stonestreet)