The UK current account recorded a deficit of £2.0 billion in the second quarter of 2011, down from a revised deficit of £4.1 billion (originally published as a deficit of £9.4 billion) in the previous quarter. The second quarter balance is equivalent to -0.5 per cent of GDP, compared to -1.1 per cent in the previous quarter.
The current account deficit narrowed as:
• the income surplus increased by £2.2 billion to £9.6 billion
• the deficit on current transfers decreased by £0.9 billion to £4.8 billion
However, this was partly offset as:
• the trade deficit increased by £0.9 billion to £6.8 billion
The current account balance equates to -0.5 per cent of GDP at current market prices in the second quarter of 2011, compared with -1.1 per cent in the previous quarter. The deficit on trade in goods and services is equivalent to -1.8 per cent of GDP in the latest quarter, compared with -1.6 per cent in the first quarter of 2011. The surplus on income equates to 2.6 per cent of GDP in the latest quarter, compared with 2.0 per cent in the previous quarter. The deficit on current transfers is equivalent to -1.3 per cent of GDP, compared with -1.5 per cent in the previous quarter.
A deficit of £8.8 billion was recorded with the EU in the second quarter of 2011, compared with a deficit of £13.4 billion in the previous quarter. This decrease in the deficit was primarily due to a fall in the trade deficit, which in turn was mainly driven by an increase in exports of both goods and services. The current account with non-EU countries showed a surplus of £6.8 billion in the latest quarter, compared with a surplus of £9.2 billion in the first quarter of 2011. This fall was driven by an increase in the trade in goods deficit, partially offset by an increase in the income surplus.
The trade in goods deficit increased to £24.6 billion in the second quarter of 2011, compared with £22.8 billion in the previous quarter. Exports fell by £1.2 billion while imports rose by £0.6 billion to £98.4 billion, the highest on record.
The deficit for trade in oil widened by £0.9 billion to a record deficit of £2.7 billion, reflecting the increase in the oil $/barrel price through to May 2011. Imports of oil rose by £0.7 billion to a record £12.4 billion but exports fell by £0.2 billion to £9.6 billion. The deficit in semi-manufactured goods widened by £0.3 billion to a record deficit of £2.4 billion, driven by higher imports of inorganic chemicals and medicinal products. The deficit in finished manufactured goods widened by £0.3 billion to £12.6 billion, driven by higher imports of works of art, mechanical machinery and clothing.
The trade in services surplus was a record £17.8 billion in the second quarter of 2011, £0.8 billion higher than in the previous quarter. Exports increased by £1.5 billion to a record £46.1 billion. This was mainly driven by record other business and travel services exports, together with an increase in financial services exports. Imports increased by £0.6 billion to £28.3 billion, driven by a £0.4 billion increase in travel services and a £0.3 billion increase in financial services.
The income surplus increased from £7.4 billion in the first quarter of 2011 to £9.6 billion in the latest quarter. The increase was driven by income receipts (credits) which increased by £1.6 billion in the latest quarter combined with a fall of £0.6 billion in income payments (debits). In terms of functional categories, the increased income surplus was driven by a decrease in the portfolio investment deficit and an increase in the direct investment surplus.
The deficit on compensation of employees was £0.1 billion in the second quarter of 2011, little changed from the previous quarter.
The surplus on direct investment income was £17.1 billion in the second quarter of 2011, an increase of £1.6 billion on the previous quarter. The increase surplus was driven by payments falling by more than receipts. Earnings on direct investment abroad (receipts) were £26.9 billion in the latest period, down from £28.4 billion in the first quarter of 2011. This fall was mainly due to a reduction in earnings abroad by UK private non-financial corporations. Foreign earnings on direct investment in the UK (payments) fell by £3.0 billion in the latest quarter to £9.8 billion. This decrease was mainly due to a fall in profits by foreign-owned UK private non-financial corporations.
Portfolio investment income recorded a deficit of £3.0 billion in the second quarter of 2011, following a deficit of £4.8 billion in the previous quarter. This was driven by a decrease in the deficits for both debt and equity securities. UK earnings on portfolio investment abroad increased by £2.1 billion, mainly due to increased earnings on debt securities. Foreign earnings on portfolio investment in the UK increased by £0.3 billion, the rise was due to higher earnings on UK debt securities.
The deficit on earnings from other investment increased by £1.2 billion to £4.7 billion in the latest quarter. Earnings on other investment abroad increased by £0.9 billion, but this was more than offset by an increase in earnings of £2.1 billion on other investment in the UK.
The deficit on current transfers decreased by £0.9 billion in the second quarter of 2011 to £4.8 billion. This was due to lower payments by general government. It should be noted that the quarterly path of net contributions to EU institutions can be erratic.
The capital account recorded a surplus of £1.0 billion in the second quarter of 2011, an increase of £0.3 billion from the previous quarter.
The financial account showed a net outflow (i.e. outward investment) of £9.0 billion in the second quarter of 2011 compared with a net outflow of £3.5 billion in the previous quarter. There was net investment abroad (outflow) of £42.7 billion in the latest quarter, following net investment of £160.1 billion in the first quarter of 2011. The net investment in the UK (inflow) was £33.8 billion in the second quarter of 2011, following an inflow of £156.6 billion in the previous quarter.
Direct investment recorded net outward investment of £23.9 billion in the latest quarter compared with net outward investment of £8.1 billion in the previous quarter.
Direct investment abroad fell by £1.0 billion in the latest quarter to £30.1 billion. This was due to a decrease in investment in equity capital and reinvested earnings; partially offset by a switch from net capital inflows to net capital outflows in the latest quarter. The fall in investment was primarily driven by a decrease in net investment by private non-financial corporations and monetary financial institutions. Private non-financial institutions net investment fell from £25.3 billion in the first quarter of 2011, to £20.3 billion in the latest quarter. Monetary and financial institutions invested £2.9 billion abroad in the latest quarter, down from £4.6 billion in the previous quarter. These falls were partially offset by an increase in net investment by other financial intermediaries.
Direct investment in the UK was £6.1 billion in the second quarter of 2011, a fall of £16.8 billion from the previous quarter. The fall was mainly driven by a reduction in investment in equity capital. The reduction in net investment was primarily driven by a fall in investment in UK private non-financial corporations, down from £18.2 billion in the previous quarter to £5.5 billion in the second quarter of 2011.
Portfolio investment recorded a net outflow of £33.3 billion in the second quarter of 2011, down from a net outflow of £54.5 billion in the previous quarter. The fall was driven by an almost equal reduction in the net outflow of both equity and debt securities. The equities outflow reduced from £11.0 billion to £0.3 billion and the debt securities outflow reduced from £43.5 billion to £33.0 billion.
Portfolio investment abroad was £45.6 billion in the second quarter of 2011, a fall of £0.4 billion from the previous quarter. The fall in the investment was driven by UK monetary financial institutions switching to net disinvestment in short term debt and equity securities, combined with a fall in investment in long term debt by other financial intermediaries. The reduction in investment abroad was partially offset by increased net investment by monetary financial institutions in long term debt and a switch to net investment in short term debt by central government. Investment by monetary financial institutions was £15.6 billion in the second quarter of 2011, £7.3 billion lower than the previous quarter; investment by other financial intermediaries was £19.3 billion, £2.5 billion lower, whereas central government switched from net disinvestment £2.6 billion to net investment of £6.5 billion.
Portfolio investment in the UK switched to net investment of £12.3 billion in the second quarter of 2011, following net disinvestment of £8.6 billion in the previous quarter. This was primarily driven by a switch to net investment of £17.6 billion in government gilts following a net disinvestment of £4.0 billion in the previous quarter. Investment in long term debt securities issued by other sectors in the UK switched from £5.3 billion net disinvestment in the last quarter to £6.5 billion net investment in the second quarter of 2011. These movements were partially offset by a switch to net disinvestment of £12.4 billion, from net investment of £6.1 billion, in securities issued by UK monetary financial institutions.
Financial derivatives showed net settlement payments of £9.0 billion in the second quarter, following payments of £16.4 billion in the previous quarter.
Other investment in the latest quarter recorded net inflows of £41.6 billion compared with net inflows of £45.1 billion in the previous quarter.
Other investment abroad recorded a net inflow (disinvestment) of £26.4 billion in the second quarter of 2011, following net outflow (investment) of £97.1 billion in the previous quarter. The switch to a net inflow was mainly due to UK residents switching from £78.1 billion net deposits abroad to £16.1 billion net withdrawal of deposits in the latest quarter; together with non-residents switching to £10.7 billion net repayments on short term loans from UK monetary financial institutions following £20.2 billion net borrowing.
Other investment in the UK showed a net inflow (investment) of £15.3 billion in the second quarter of 2011, compared with net inflow of £142.2 billion in the previous quarter. The fall in investment was mainly driven by non-residents switching from £51.9 net deposits of foreign currency with UK banks to £29.6 billion of net withdrawals of foreign currency, together with a switch to net repayments on short term loans of £4.3 billion by UK other sectors from net borrowing of £47.8 billion in the previous quarter.
Reserve assets showed net investment of £2.5 billion in the second quarter of 2011, compared with net investment of £2.3 billion in the previous quarter.
The international investment position showed net external liabilities (i.e. liabilities exceed assets) of £115.0 billion at the end of the second quarter of 2011, compared with net external liabilities of £172.9 billion at the end of the previous quarter.
UK assets abroad increased by £137.9 billion from the end of the first quarter of 2011 to a level of £9,989.8 billion at the end of the second quarter of 2011. The increase in the stock of UK assets in the second quarter of 2011 was due to an increase in the stock of all financial assets, but primarily due to record stocks of portfolio and direct investment assets.
UK liabilities increased by £80.0 billion in the second quarter of 2011 to a level of £10,104.7 billion. The increase in UK liabilities was primarily due to an increase in the stock of other investment and financial derivatives liabilities.
Data in this release have been revised from the first quarter of 1997. Revisions tables are included in the balance of payments reference tables - Table R1, R2 and R3 (647.5 Kb Excel sheet) .
The revisions to trade in goods from the first quarter of 1997 onwards reflect revised data from Her Majesty’s Revenue and Customs and other data suppliers, revised estimates of trading associated with VAT MTIC fraud and a reassessment of seasonal factors; including the move from X-11 ARIMA to X-12 ARIMA for seasonal adjustment. The revisions are consistent with the Quarterly National Accounts (2nd Quarter 2011) published on 5th October 2011 and with the 2011 Blue Book.
Revisions from 1997 onwards result from a general reassessment of data following the annual supply use balancing process; a reassessment of seasonal factors, including the move from X-11 ARIMA to X-12 ARIMA for seasonal adjustment; and the incorporation of updated source data from the Bank of England, Chamber of Shipping and Department for Transport. ITIS annual data for 2010 has also been included.
Revisions to current transfers are attributable to revised source data for transfers involving the UK government and the use of the latest data for various ONS surveys and a reassessment of seasonal factors.
Revisions to the capital account are attributable to revised source data from the HM Treasury, Department for International Development and the International Trade in Services survey.
Revisions from 2002 reflect a reassessment of coverage adjustments to data from the Bank for International Settlements. Revised methodology for estimating UK banks net transactions in financial derivatives with non-residents, together with the introduction into the accounts of the associated asset and liability levels, has now been extended back into 2004 and 2005. Revised data from the Bank of England for UK banks' reinvested earnings and transactions in bonds and notes has been incorporated from 2007. Revised annual data for foreign direct investment has been incorporated in 2008. From the first quarter of 2010, UK securities dealers' net transactions in financial derivatives with non-residents have been introduced into the accounts, together with the associated asset and liability levels.
Revisions to recent periods reflect the receipt of new or revised survey data and a reassessment of seasonal factors. Revisions in the latest period also reflect amended data from quarterly inquiries and new estimates from the Bank for International Settlements.
Following on from our announcement in the last statistical bulletin, ONS has reformatted the contents and format of statistical bulletins. This is implemented in this edition.
This release is consistent with the dataset to be published in this year’s UK Balance of Payments Pink Book and UK National Accounts Blue Book. The 2011 Blue Book and Pink Book and their datasets will be published electronically on the Office for National Statistics website on 23 November 2011.
In accordance with the National Accounts revision policy, the current revisions period is open back to the first quarter of 1997.
From the second quarter 2011, ONS have included financial derivatives business of UK securities dealers in both the UK’s financial account (flows) and the international investment position (stocks). The data series start from the first quarter of 2010. The inclusion of this data improves the sector coverage of financial derivatives which previously included only data on financial derivatives business of UK banks.
An article detailing the improvements to the coverage of derivatives within the United Kingdom Economic Accounts can be found at:
The 2011 edition of the UK National Accounts contains significant changes, this has been a major undertaking. It was decided that the recommendations from the review of debt securities could not included at this time. Future work plans are being developed to take forward this work but it is expected to be incorporated in the 2012 edition.
Future revision period
The next balance of payments release, for the third quarter of 2011, will have a revision period back to the first quarter of 2010.
On 29 September 2011, the ONS announced changes to its forthcoming release schedule.
This announcement can be found at:
The annual publication of Blue Book 2011 and Pink Book 2011 was due to be published on 1 November, this has now been delayed until the 23 November. These releases are an essential data set for those concerned with macro-economic policies and studies. An article on the content of Blue Book 2011 has been produced and can be accessed via the following link:
The major changes in industry and product classification and in methods of deflation, and use of new re-engineered and integrated systems, has involved an exceptionally complex processing round. National accounts always involve a number of steps to balance and adjust data, to give a single view of the economy from multiple sources and perspectives. We have endeavoured to ensure that all the separate data sets have been rigorously checked for coherence and consistency but it is possible that the requirements of this round have led to some anomalies in individual data points and series. We have plans for development work in this area over the next year. We are happy to discuss any particular queries with users.
Code of Practice for Official Statistics
National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference. © Crown Copyright 2011.
Understanding the data
1. Short guide to Balance of Payments
A guide to balance of payments can be found within the methodological notes of the Pink Book 2011:
2. Interpreting the data
ONS and the Bank of England are reviewing the measurement of banks’ earnings on Foreign Direct Investment (FDI). The current estimates of banks’ earnings on FDI are shown on an all inclusive basis, including holding gains and losses, but FDI earnings can also be presented on a current operating performance basis, which excludes holding gains and losses. Current international standards, as defined in the fifth edition of the Balance of Payments Manual, allow presentation on either basis. The UK intend to move to a current operating performance measure when it implements the sixth edition of the Balance of Payments Manual in 2014.
Import figures for Trade in Goods include adjustments to allow for the impact of trade associated with VAT Missing Trader Intra-Community (MTIC) fraud. The adjustments were introduced for the first time in the UK Trade May 2003 First Release published on 9 July 2003. The adjustments are added to the EU import estimates derived from Intrastat returns.
An article explaining the fraud and the impact on the trade figures was published on 9 July 2003. A follow-up report was published on 17 February 2005, which summarises the work carried out since July 2003, to review the estimates of the impact on the trade figures. The articles can be found at:
Changes to the pattern of trading associated with MTIC fraud can make it difficult to analyse trade by commodity group and by country, as changes in the impact of activity associated with this fraud affect both imports and exports. Originally, most carousel chains only involved EU member states. From 2004 in particular, some carousel chains included non-EU countries, e.g. Dubai and Switzerland. However, the MTIC trade adjustments are added to the EU import estimates derived from Intrastat returns as it is this part of the chain that is not generally recorded. In particular, adjustments affect trade in capital goods and intermediate goods - these categories include mobile phones and computer components, which are still the most widely affected goods.
Figures for total exports and imports less adjustments for trade associated with VAT MTIC fraud are given in the monthly UK Trade Statistical Bulletin, which can be found at:
Figures for the most recent periods are provisional and subject to revision in light of: (a) late and corrected responses to surveys; (b) revisions to seasonal adjustment factors which are re-estimated annually.
ONS delivered Q2 2011 flash estimates of the current account at the end of August to Eurostat solely for them to estimate aggregate euro-indicators. The same approach is followed for each quarterly delivery.
In order to comply with Regulation (EC) No 184/2005, ONS supply Eurostat and the European Central Bank with current account data for trade in services and investment income unadjusted for FISIM e.g. FISIM will not be included in trade in services but will remain in investment income. Additionally, a detailed geographical and product breakdown of trade in services is supplied to Eurostat to comply with the same regulation. Due to the delay in producing this quarter’s balance of payments, and in order to comply with the Regulation, forecast estimates were supplied to Eurostat and the European Central Bank on 30 September 2011.
3. Definition and explanation
The balance of payments glossary can be found within the Pink Book at:
4. Use of the data
Balance of payments estimates are used by the Bank of England and the Treasury to inform decisions on monetary and fiscal policy. The Department for Business, Innovation and Skills also uses balance of payments estimates to identify international trade partners. International users include the Statistical Office for the European Union (Eurostat) and the International Monetary Fund (IMF); Eurostat uses UK figures to compile aggregate EU accounts and the IMF collate data as a means of ensuring financial stability and sustainability.
Examples of how government departments use balance of payments estimates are:
• In providing ministerial briefing on the headline Balance of Payments and Trade statistics pre-release.
• Feeding data into their own regular analyses of the macro economy, and also into more ad-hoc and in-depth analyses. For example, importance of trade with particular countries or groups of countries, importance of trade in different commodities/services, identifying comparative advantage, changes in import and export prices, economic contribution from trade and income, and looking at inward and outward investment. These analyses/briefings are aimed to inform ministers/decision makers of the current/historical situation, and provide evidence for the policy debate.
• Balance of payments data are also of interest to a wider range of user groups including the media, researchers and other regional, national and international policy makers. Some users focus primarily on the developments in the current account and their financing, including the sustainability of the current account imbalances in the longer term and the need for policy adjustments. Others focus on an analytic presentation, classifying its standard components of balance of payments and their relationship to other components (eg. trade and direct investment, and foreign direct investment and productivity). The balance of payments allows a sector breakdown of the financial account and their relationship to domestic sources of finance.
Further details on use of the data can be found in the user engagement survey at:
The balance of payments methodological notes can be found within the Pink Book at:
1. Composition of the data
Table C provides an EU/non-EU breakdown of the current account. Data in this release are presented on an EU27 basis, reflecting the expansion of EU membership on 1 January 2007.
International investment position statistics are based on recording direct investments at book values and other assets and liabilities at estimated market values. These estimates are likely in some respects to be deficient in scope and coverage. Quarterly estimates tend to be less reliable because they are largely based on cumulated flows and not reported levels.
In theory, every credit entry should be matched by a corresponding debit so that total current, capital and financial account credits should be equal to, and therefore offset by, total debits. In practice there is a discrepancy termed net errors and omissions. The net errors and omissions are shown on Table A.
2. Seasonal adjustment
Current and capital accounts are seasonally adjusted. Financial account and international investment position data are not seasonally adjusted.
When compiling the geographic breakdown of income, current transfers and trade in services, the EU countries are seasonally adjusted. The non-EU seasonally adjusted figure is calculated by subtracting the seasonally adjusted EU total from the seasonally adjusted world total. Both EU and non-EU data are seasonally adjusted for trade in goods; these are aggregated to form the world total.
1. Basic quality information
Common pitfalls in interpreting series: Expectations of accuracy and reliability in early estimates are often too high. Revisions are an inevitable consequence of the trade off between timeliness and accuracy. Early estimates are based on incomplete data.
Very few statistical revisions arise as a result of ‘errors’ in the popular sense of the word. All estimates, by definition, are subject to statistical ‘error’; but in this context the word refers to the uncertainty inherent in any process or calculation that uses sampling, estimation or modelling. Most revisions reflect either the adoption of new statistical techniques, or the incorporation of new information which allows the statistical error of previous estimates to be reduced. Only rarely are there avoidable ‘errors’ such as human or system failures, and such mistakes are made quite clear when they do occur.
2. Summary Quality Report
A Summary Quality Report for this Statistical Bulletin is available on the National Statistics website at:
3. National Accounts revisions policy
The data in this Statistical Bulletin are subject to revisions following the ONS National Accounts Revision policy. The policy can be found at:
Estimates for the most recent quarters are provisional and, as usual, are subject to revision in light of updated source information. ONS has recently started to provide an analysis of past revisions in the Balance of Payments and other Statistical Bulletins which present time series. Details can be found at:
4. Revision triangles
Revisions to data provide one indication of the reliability of key indicators. The table below show summary information on the size and direction of the revisions which have been made to the data covering a five year period. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows that the test is significant.
The table covers estimates first published in the balance of payments from December 2003 (2003q3) to September 2008 (2008q2).
|Current account (seasonally adjusted)||£ million|
|Revisions between first publication and estimates three years later|
|Value in latest period||Average over the last five years||Average over the last five years without regard to sign (average absolute revisions)|
Spreadsheets giving revisions analysis (real time databases) of estimates from 1996 to date and the calculations behind the averages in the table are available on the National Statistics website at:
An article analysing balance of payments current account revisions was published in the May 2007 edition of Economic & Labour Market Review. It is available on the National Statistics website at:
Details of the policy governing the release of new data are available from the Media Relations Office. Also available is a list of the organisations given pre-publication access to the contents of this bulletin.
The complete run of data in the tables of this statistical bulletin is available to view and download in electronic format through ONS Time Series Data. Users can download the complete bulletin in a choice of zipped formats, or view and then download their own sections of individual series. The Time Series Data can be accessed at:
Further balance of payments data is available online in the quarterly ONS publication United Kingdom Economic Accounts at:
ONS allows a list of agreed officials to have access to data 24 hours before publication, which is available on the website at:
Next Publication Date:
22 December 2011
Office for National Statistics
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|Damian Whittard||+44 (0)1633 455497||Balance of Payments||BoP@ons.gsi.gov.uk|