A RISING tide of uncommitted cash flowing into and out of Britain this year may point to an imminent rise in takeover activity, according to the latest balance of payments data.

British companies and institutions sent more than £136 billion of capital abroad in the year’s second quarter as funds that are not yet invested but held mainly as bank deposits.

This came on the heels of an even larger outflow of £229.5 billion in the first quarter. Both figures marked a surge from a level of just £35.9 billion in the final quarter of last year.

The tide of money leaving the country was matched by strong inflows of uncommitted capital — £177.8 billion in the second quarter and £189.2 billion in the first.

Officials at the Office for National Statistics said that the big flows of capital represented movements of money between banks and could be a signal of an impending steep rise in mergers and acquisitions activity.

The balance of payments data also showed a sharp improvement in Britain’s current account deficit, which narrowed to £3.1 billion in the second quarter, down from £7.3 billion in the first and the lowest level since the beginning of 2003.

The improvement in the current account came as a 6 per cent increase in Britain’s second-quarter exports cut the deficit on the nation’s trade in goods, while a strong rise in income from UK investments abroad also flattered the numbers.

The nation’s income from direct investments abroad — where UK institutions own more than 10 per cent of a company — rose to £18.5 billion in the second quarter.

With overseas investors’ earnings on their direct investments in Britain dropping slightly to £6.5 billion, this left the country’s direct investment surplus at a record £12 billion for the second quarter.

Britain also continued to rake in strong returns on foreign investments in shares and bonds. Returns on these portfolio investments in the second quarter climbed to £11.7 billion, as UK financial groups invested heavily in foreign debt issues.

Overseas investors’ earnings on their holdings of British shares and bonds dropped, leaving the UK with a surplus of £1.5 billion on portfolio investment, after a deficit of £625 million in the first quarter.

However, while Britain received strong returns on its investments abroad, its overall stock of these declined. With foreigners owning more UK assets than Britain owns abroad, the country was left with a “net external liability” of £194.1 billion, which was equivalent to a record 16.1 per cent of national income.