A production error has been discovered in Table C of the Balance of Payments, Q1 2012, originally published on 28 June 2012. The error affects 2011 annual data and 2011 quarterly data for exports of services, imports of services, total exports of goods and services, total imports of goods and services, total credits, total debits, and balances for these periods. The Balance of Payments Statistical Bulletin, time series data, Excel and PDF tables have been affected and have now been updated.
ONS apologises for any inconvenience caused.
The UK current account recorded a deficit of £11.2 billion in the first quarter of 2012, up from a revised deficit of £7.2 billion (originally published as a deficit of £8.5 billion) in the previous quarter. The first quarter deficit is equivalent to 2.9 per cent of GDP.
The current account deficit widened as:
The trade deficit increased by £2.3 billion to £7.8 billion,
The income surplus decreased by £2.2 billion to £2.2 billion,
This was partially offset as the deficit on current transfers decreased by £0.5 billion to £5.5 billion.
The current account balance plus the capital account balance measures the extent to which the UK is a net lender (i.e. in surplus) or net borrower (i.e. in deficit). The UK has run a combined current and capital account deficit in every year since 1997 and every quarter since the fourth quarter of 2009.
In the latest full year, 2011, the UK was a net borrower of £25.6 billion, down from £33.6 billion in 2010. This was as a result of an increased trade in services surplus, the largest on record, combined with an increased income surplus.
Both exports and imports of services were at a record high in 2011, but as exports grew by more than imports, this led to an increase in the trade in services surplus. This was mainly due to the increase in exports of financial and other business services.
The increase in the income surplus in 2011 was driven by an increase in the direct investment income surplus, as income receipts increased by more than income payments. Receipts increased primarily due to the foreign subsidiaries of UK banks returning to profits after recording losses in 2010.
In the latest quarter, the first quarter of 2012, the UK was a net borrower of £10.2 billion, up from £6.4 billion in the previous quarter. This was due to falls in both the surplus on income and the surplus on trade in services.
The reduction in the income surplus was driven by a fall in direct investment receipts, as the foreign subsidiaries of UK private non-financial corporations recorded lower profits than in the previous quarter. The reduction in the trade in services surplus was driven by a fall in exports.
As a result of the incorporation of improved methodology for insurance data, there are revisions to the trade in services balance and the income balance from the first quarter of 1987 and therefore revisions to the current account balance from that point. The specific revisions are to exports and imports of insurance services and to other investment income debits. There are also revisions to current transfers from 1987, but the changes to credits and debits are equal so the balance is unchanged; the specific transfers revisions are to 'other sectors other payments' and to 'other sectors other receipts'.
The current account deficit equates to 2.9 per cent of GDP at current market prices in the first quarter of 2012, compared with 1.9 per cent in the previous quarter. The deficit on trade in goods and services is equivalent to 2.0 per cent of GDP in the latest quarter, compared with 1.5 per cent in the fourth quarter of 2011. The surplus on income equates to 0.6 per cent of GDP in the latest quarter, compared with 1.2 per cent in the previous quarter.
A deficit of £17.7 billion was recorded with the EU in the first quarter of 2012, compared with a deficit of £16.1 billion in the previous quarter. This increase was due to higher deficits on current transfers and on trade in goods, together with a lower surplus on trade in services, which were partially offset by a fall in the deficit on income. The current account with non-EU countries showed a surplus of £6.5 billion in the first quarter of 2012, £2.4 billion lower than in the previous quarter. This fall was due to lower surpluses on income and on trade in services, partially offset by falls in the deficits on current transfers and on trade in goods.
The trade in goods deficit in the first quarter of 2012 was £25.0 billion, compared with £24.7 billion in the previous quarter. Exports rose by £0.2 billion while imports rose by £0.5 billion.
The deficit in finished-manufactured goods widened by £1.4 billion to a deficit of £13.4 billion, driven by lower exports of intermediate goods, capital goods and aircraft, which were only partially offset by higher exports of cars. This was partially offset by the deficit in oil which narrowed by £1.2 billion to £2.8 billion.
The trade in services surplus was £17.2 billion in the first quarter of 2012, a decrease of £2.0 billion from the previous quarter. Exports decreased by £2.5 billion to a level of £46.4 billion, driven by falls in insurance, other business services, communications, and royalties & license fees. The level of imports decreased £0.5 billion to £29.2 billion.
The income surplus decreased from £4.4 billion in the fourth quarter of 2011 to £2.2 billion in the latest quarter. The decrease was mainly due to a fall in income receipts (credits). In terms of functional categories, the decrease was driven by a £4.0 billion decrease in the direct investment surplus, partially offset by a £2.0 billion decrease to the portfolio investment deficit.
The deficit on compensation of employees fell slightly in the first quarter of 2012, to £29 million.
The surplus on direct investment income was £8.7 billion in the first quarter of 2012, down from £12.7 billion in the previous quarter. The decreased surplus was driven by payments increasing and receipts falling. Receipts were £20.4 billion in the latest period, £2.0 billion lower than in the fourth quarter of 2011. This fall was mainly due to a reduction in earnings abroad by UK private non-financial corporations. Payments rose by £2.0 billion in the latest quarter to £11.7 billion. The increase was mainly due to a switch to profits by foreign-owned UK monetary financial institutions, following losses in the previous quarter.
Portfolio investment income recorded a deficit of £2.8 billion in the first quarter of 2012, following a deficit of £4.8 billion in the previous quarter. This was driven by decreases in the both debt and equity securities deficits. UK earnings on portfolio investment abroad increased by £0.5 billion, due to increased earnings on both debt and equity securities. Foreign earnings on portfolio investment in the UK decreased by £1.4 billion, due to lower earnings on UK debt and equity securities.
The deficit on earnings from other investment increased by £0.2 billion to £3.8 billion in the latest quarter. Other investment abroad fell by £0.9 billion to £8.7 billion while earnings on other investment in the UK decreased by £0.7 billion to £12.5 billion.
The deficit on current transfers decreased by £0.5 billion to £5.5 billion in the first quarter of 2012, mainly due to a fall in the deficit for 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 first quarter of 2012, an increase of £0.1 billion from the previous quarter.
The financial account showed a net inflow (i.e. inward investment) of £1.7 billion in the first quarter of 2012, compared with a net inflow of £10.6 billion in the previous quarter. UK investment abroad showed a switch from £99.4 billion disinvestment (inflow) to investment of £72.2 billion in the latest quarter. Investment in the UK also showed a switch in the first quarter from £88.8 billion disinvestment (outflow) to investment of £73.9 billion.
Direct investment recorded a net outflow (i.e. outward investment) of £4.2 billion in the first quarter of 2012 compared with a net outflow of £2.3 billion in the previous quarter.
Direct investment abroad increased by £12.5 billion in the latest quarter to £16.2 billion. This was due to reinvested earnings increasing to £14.2 billion from £0.1 billion in the previous quarter. There was also a switch to investment in equity capital of £1.6 billion, following disinvestment of £2.3 billion in the previous quarter. Partially offsetting these was a £5.5 billion decrease in other capital transactions to £0.3 billion in the first quarter of 2012. On a sector basis, the rise in investment was largely driven by an increase of £10.5 billion in investment abroad by UK private non-financial corporations. In addition, UK monetary financial institutions switched from net disinvestment of £1.2 billion in the fourth quarter of 2011 to net investment of £2.4 billion in the latest quarter.
Direct investment in the UK increased by £10.6 billion in the first quarter of 2012 to £12.0 billion. The rise was driven by a switch in other capital transactions to investment of £5.8 billion from a disinvestment of £8.2 billion in the previous quarter. Partially offsetting this were decreases in investment in equity capital and reinvested earnings of £2.5 billion and £1.0 billion respectively. On a sector basis, the increase in net investment was driven by a switch from disinvestment in UK private non-financial corporations of £4.5 billion in the fourth quarter of 2011 to net investment of £9.6 billion in the latest quarter. Partially offsetting this change was a fall in investment in security dealers of £4.1 billion from the previous quarter.
Portfolio investment recorded a net outflow of £62.2 billion in the first quarter of 2012, a switch from a net inflow of £18.1 billion in the previous quarter. Both debt securities and equity securities switched from a net inflow in the previous quarter to a net outflow in the latest quarter of £51.4 billion and £10.8 billion respectively.
Portfolio investment abroad increased £54.7 billion from the previous quarter to a net investment of £55.7 billion in the first quarter of 2012. The change was driven by UK monetary financial institutions switching from net disinvestment of £11.3 billion to net investment of £17.5 billion, combined with an increase in net investment by other financial intermediaries from £9.4 billion in the previous quarter to £24.1 billion in the first quarter of 2012.
Portfolio investment in the UK switched to net disinvestment of £6.5 billion in the first quarter of 2012, following net investment of £19.1 billion in the previous quarter. This was mainly due to a switch to net disinvestment in UK equity securities of £0.8 billion in the first quarter of 2012 following net investment of £16.3 billion in the previous quarter. Additionally there was also a switch to net disinvestment in debt securities of £5.8 billion following net investment of £2.7 billion in the previous quarter. The net disinvestment in UK debt securities was driven by a switch to net disinvestment of £28.0 billion in bonds and notes, partly offset by a switch to net investment of £22.2 billion in Money Market Instruments.
Financial derivatives showed net settlement payments of £36.4 billion in the first quarter of 2012 following net settlement payments of £3.8 billion in the previous quarter.
Other investment in the latest quarter recorded net inflows of £32.3 billion compared with net outflows of £7.8 billion in the previous quarter.
Other investment abroad recorded net outflows (investment) of £36.1 billion in the first quarter of 2012, following net inflows of £101.5 billion in the previous quarter. The switch to a net outflow was mainly due to UK residents switching from £90.0 billion net withdrawal of deposits abroad to £16.6 billion net deposits abroad in the latest quarter, together with non-residents short term loans from UK monetary financial institutions, switching to net advances of £19.5 billion, following net repayments of £13.1 billion in the previous quarter.
Other investment in the UK showed net investment of £68.4 billion in the first quarter of 2012 compared with net disinvestment of £109.3 billion in the previous quarter. The rise in investment was driven by UK residents switching from short term loan net repayments of £75.4 billion to net borrowing of £27.4 billion in the latest quarter. Non-resident deposits with UK monetary financial institutions also switched from net withdrawals of £33.5 billion to net deposits of £41.0 billion in the latest quarter.
Reserve assets showed net investment of £0.6 billion in the first quarter of 2012 compared with £1.2 billion in the previous quarter.
The international investment position showed net external liabilities (i.e. liabilities exceed assets) of £132.3 billion at the end of the first quarter of 2012 compared with net external liabilities of £196.4 billion at the end of the previous quarter. UK assets abroad decreased by £359.3 billion from the end of the fourth quarter of 2011 to a level of £10,583.9 billion at the end of the first quarter of 2012. The decrease in the stock of UK assets in the latest quarter was mainly due to a decrease in the stock of financial derivative assets. UK liabilities decreased by £423.4 billion in the first quarter of 2012 to a level of £10,716.1 billion. The decrease in UK liabilities was primarily due to a decrease in the stock of financial derivatives liabilities.
Data in this release have been revised from the first quarter of 1987. Revisions tables are included in the balance of payments reference tables (Tables R1, R2 and R3).
Trade in goods – Revisions to trade in goods from 1997 are due to a reassessment of the data following the annual supply use balancing process. Revisions from the first quarter of January 2012 additionally reflect revised data from HM Revenue & Customs and other data suppliers, revised estimates of trading associated with VAT MTIC fraud, later survey data on trade prices and a re-assessment of seasonal factors.
Trade in services – The incorporation of improved insurance methodology has led to revisions to both imports and exports of services from 1987, particularly in later years as reinsurance becomes more prevalent. Additionally, there are revisions as a result of a general reassessment of data following the annual supply use balancing process. For 2011, updated source data from the Bank of England, Chamber of Shipping and Department for Transport and the annual International Trade in Services survey have been included.
Current transfers – The incorporation of improved insurance methodology has led to revisions to current transfers from 1987; there are equal revisions to credits and to debits, as a result the balance is unchanged. In addition, there are revisions from 2009 due to revised source data for transfers involving the UK government and the use of the latest data for various ONS surveys.
Capital account – Revisions to the capital account from the first quarter of 2011 are attributable to revised source data from the International Trade in Services survey.
Investment income, financial account and international investment position – Revisions from the first quarter of 2009 reflect new and revised survey data, a reassessment of coverage adjustments to data from the Bank for International Settlements and a reassessment of seasonal factors. Revisions to the fourth quarter of 2011 also reflect new estimates from the Bank for International Settlements. The incorporation of improved insurance methodology has led to revisions to investment income debits from 1987.
ONS has also published articles on the new insurance methodology, Williams, Duff and Wisniewski (2012) ‘ New insurance and data methods 1997-2008’ (97.8 Kb Pdf) and Williams, Duff and Wisniewski (2012) ‘Blue Book 2012:Improvements to the measurement of insurance services’.
In accordance with the National Accounts revision policy, the current revisions period is open back to the first quarter of 1987. The data within 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 on 31 July 2012.
Future revision period
The next balance of payments release, for the second quarter of 2012, will have a revision period back to the first quarter of 2011.
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 2012.
Understanding the data
1. Short guide to Balance of Payments
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 intends 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 MTIC fraud and the impact on the trade figures (131 Kb Pdf) was published on 9 July 2003. A report on further research into MTIC fraud (137.3 Kb Pdf) was published on 17 February 2005, which summarises the work carried out to review the estimates of the impact on the trade figures.
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 the monthly UK Trade Statistical Bulletin.
From the first quarter 2010, 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 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 (51.5 Kb Pdf) was published on 25 October 2011.
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 Q1 2012 flash estimates of the current account at the end of May 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. Both deliveries are scheduled to take place on 29 June 2012.
3. Definition and explanation
A glossary of terms is published in the UK Balance of Payments Pink Book.
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.
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. A quarterly geographic breakdown of the UK's current account with the Euro area, the USA, Japan, Canada, Switzerland, Brazil, China, Hong Kong, India and Russia is also available and is published in United Kingdom Economic Accounts (UKEA).
From the 1st quarter 2011 edition of the UKEA, as Estonia joined the euro area on 1 January 2011, Estonia has been included within the time series for transactions with economic and monetary union (EMU) members shown in tables B6 and B6A. As a result of this change to coverage, most of the time series for transactions with EMU members now have new four character identifiers. The time series for trade in goods have retained their previous identifiers, though their coverage has also been amended to include Estonia.
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
The Balance of Payments Statistical Bulletin Summary Quality Report (117.6 Kb Pdf) is available on the ONS website.
3. National Accounts revisions policy
The data in this Statistical Bulletin are subject to revisions following the ONS National Accounts Revision policy (43.3 Kb Pdf) .
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.
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 September 2004 (2004 Q2) to June 2009 (2009 Q1).
|Value in latest period||Revisions between first publication and estimates three years later|
|Average over the last five years||Average over the last five years without regard to sign (average absolute revisions)|
An article analysing balance of payments current account revisions (340.2 Kb Pdf) was published in the May 2007 edition of Economic & Labour Market Review.
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 (28.2 Kb Pdf) 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 on the ONS website.
Further balance of payments data is available online in the quarterly ONS publication United Kingdom Economic Accounts (UKEA).
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Next Publication Date: 27 September 2012
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