The UK current account recorded a deficit of £15.2 billion in the third quarter of 2011, the highest on record, up from a revised deficit of £7.4 billion (originally published as a deficit of £2.0 billion) in the previous quarter. The third quarter deficit is equivalent to 4.0 per cent of GDP.
The current account deficit widened as:
• the income surplus decreased by £4.2 billion to £0.3 billion
• the trade deficit increased by £2.7 billion to £9.9 billion
• the deficit on current transfers increased by £0.9 billion to £5.7 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 current and capital account deficit in every year since 1997 and every quarter since the third quarter of 1998. In the latest full year, 2010, the UK was a net borrower of £44.9 billion, the highest on record. This was as a result of a widening trade deficit, driven by a record trade in goods deficit, combined with a reduced income surplus, the lowest since 2000.
Exports and imports were at a record high in 2010. This led, however, to a widening of the trade deficit, mainly due to the increase of imports of finished manufactured goods and goods used in the production process (i.e. semi manufactured goods).
The decrease in the income surplus in 2010 was mainly driven by a fall in the direct investment income surplus. During the period 2002-2009 the banking sector was a positive contributor to the income balance and hence the current account and capital account balance. In 2010, however, the banking sector pulled down on the income surplus as UK owned banks abroad made losses, while foreign owned UK banks returned to profits after recording losses in the previous three years.
In the latest quarter, the third quarter of 2011, the UK was a net borrower of £14.2 billion; again this was the largest on record. This was primarily driven by a fall in the income surplus, combined with an increase in the trade deficit.
The reduction in the income surplus in the third quarter of 2011 was driven by a fall in the direct investment surplus as the foreign subsidiaries of UK private non-financial corporations and also UK owned foreign banks recorded lower profits as the world economy stuttered, while foreign owned UK banks registered increased profits.
The record trade deficit in the third quarter 2011 was primarily due to an increase in the deficit of products used in the production process (i.e. oil, other fuels and semi manufactured goods).
The current account deficit equates to 4.0 per cent of GDP at current market prices in the third quarter of 2011, compared with 2.0 per cent in the previous quarter. This was the largest current account deficit to GDP ratio since the second quarter of 1990. The deficit on trade in goods and services is equivalent to 2.6 per cent of GDP in the latest quarter, compared with 1.9 per cent in the second quarter of 2011. The surplus on income equates to 0.1 per cent of GDP in the latest quarter, compared with 1.2 per cent in the previous quarter.
A deficit of £13.8 billion was recorded with the EU in the third quarter of 2011, compared with a deficit of £7.2 billion in the previous quarter. This increase in the deficit was mainly due to a switch in the income balance from surplus to deficit, together with an increase in the trade in goods deficit. The current account with non-EU countries showed a deficit of £1.4 billion in the latest quarter, compared with a deficit of £0.2 billion in the second quarter of 2011. This increase was driven by a fall in the income surplus and an increase in the current transfers deficit.
The trade in goods deficit increased to £27.6 billion in the third quarter of 2011, the highest on record. Exports increased by £0.1 billion to £74.2 billion and imports rose by £2.7 billion to £101.8 billion. Both exports and imports are the highest on record.
The deficit for trade in oil widened by £1.9 billion to a record deficit of £4.1 billion. Exports of oil fell by £1.6 billion to £8.6 billion, while imports rose by £0.3 billion to £12.7 billion. The deficit for trade in fuels other than oil widened by £0.4 billion to a record deficit of £2.3 billion. The deficit in semi-manufactured goods widened by £0.3 billion to a record £3.1 billion deficit - this reflected higher imports of organic chemicals and medical products.
The overall widening of the trade in goods deficit was partially offset as the deficit in finished manufactured goods narrowed by £0.3 billion to £12.8 billion – this was driven by higher exports of electrical and mechanical machinery.
The trade in services surplus was £17.7 billion in the third quarter of 2011, largely unchanged from the previous quarter. Exports and imports both fell by £0.1 billion, to a level of £47.2 billion and £29.5 billion respectively. Although the aggregates were fairly stable, there were considerable movements between sectors. The other business services surplus decreased by £1.2 billion to £6.8 billion and the travel services deficit widened by £0.3 billion to £2.6 billion. These falls were largely offset by the financial services surplus increasing by £0.8 billion to £9.9 billion and the insurance services surplus increasing by £0.4 billion to £0.4 billion.
The income surplus decreased from £4.6 billion in the second quarter of 2011 to £0.3 billion in the latest quarter, the smallest surplus since the fourth quarter of 2000. The decrease was driven by a fall in income receipts (credits), which decreased by £3.4 billion, combined with a rise of £0.9 billion in income payments (debits). In terms of functional categories, the fall was driven by a £3.9 billion decrease in the direct investment surplus combined with a £1.5 billion increase in the portfolio investment deficit.
The deficit on compensation of employees was £0.1 billion in the third quarter of 2011, little changed from the previous quarter.
The surplus on direct investment income was £8.3 billion in the third quarter of 2011. The reduced surplus was driven by both earnings on direct investment abroad (receipts) falling and earnings on direct investment in the UK (payments) increasing. Receipts were £19.5 billion in the latest period, down from £22.3 billion in the second quarter of 2011. This fall was mainly due to a reduction in earnings abroad by UK private non-financial corporations. Payments rose by £1.2 billion in the latest quarter to £11.2 billion. This increase was mainly due to a rise in profits by foreign-owned UK monetary financial institutions.
Portfolio investment income recorded a deficit of £4.6 billion in the third quarter of 2011, following a deficit of £3.1 billion in the previous quarter. This was primarily driven by an increase in the debt securities deficit. UK earnings on portfolio investment abroad decreased by £0.8 billion, due to decreased earnings on debt securities. Foreign earnings on portfolio investment in the UK increased by £0.7 billion, the rise was due to higher earnings on UK equity securities.
The deficit on earnings from other investment decreased by £1.2 billion to £3.5 billion in the latest quarter. The decrease was driven by earnings on other investment in the UK falling by £0.9 billion combined with earnings on other investment abroad increasing by £0.3 billion.
The deficit on current transfers increased by £0.9 billion to £5.7 billion in the third quarter of 2011. This was due to higher 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 £1.1 billion in the third quarter of 2011, an increase of £0.1 billion from the previous quarter.
The financial account showed a net inflow (i.e. inward investment) of £22.0 billion in the third quarter of 2011, the highest on record, compared with a net outflow of £4.3 billion in the previous quarter. There was increased investment abroad (outflow) of £72.4 billion in the latest quarter, following a £47.6 billion outflow in the second quarter of 2011. Investment in the UK (inflow) was £94.4 billion in the third quarter of 2011, following an inflow of £43.3 billion in the previous quarter.
Direct investment recorded a net outflow (i.e. outward investment) of £7.5 billion in the third quarter compared with a net outflow of £20.1 billion in the previous quarter.
Direct investment abroad fell by £7.9 billion in the latest quarter to £18.9 billion. This was due to a decrease in the net other capital investment and a reduction in reinvested earnings; partially offset by an increase in investment in equity capital. On a sector basis, the fall in investment was primarily driven by a switch to a £4.6 billion net realisation by monetary financial institutions and a switch to a £0.3 billion net realisation by other financial intermediaries. These falls were partially offset by increased investment, to £22.9 billion, by private non-financial corporations.
Direct investment in the UK was £11.4 billion in the third quarter of 2011, a rise of £4.7 billion from the previous quarter. The rise was driven by increased reinvested earnings and net other capital investment. These increases were partially offset by a fall in investment in equity capital. On a sector basis, the increase in net investment was primarily driven by a rise in investment in UK private non-financial corporations, up from £6.4 billion in the previous quarter to £11.3 billion in the third quarter of 2011.
Portfolio investment recorded a net inflow of £52.1 billion in the third quarter of 2011, a switch from a net outflow of £33.4 billion in the previous quarter. Both debt and equity securities switched from net outflows in the previous quarter to net inflows of £19.8 billion and £32.3 billion respectively.
Portfolio investment abroad switched to net realisation of £69.9 billion in the third quarter of 2011, from net investment of £42.2 billion in the previous quarter. The change was driven by UK monetary financial institutions’ switch to net realisation of £73.6 billion, primarily in long term debt securities, other financial intermediaries switch to £9.5 billion net realisation in equity securities, and central government’s switch to £0.5 billion net realisation in money market instruments. The realisation of investment abroad was partially offset by a switch to £1.5 billion net investment by insurance companies and pension funds in equity securities.
Portfolio investment in the UK switched to net realisation of £17.8 billion in the third quarter of 2011, following net investment of £8.8 billion in the previous quarter. This was primarily driven by increased net realisation of £35.9 billion in securities issued by UK monetary financial institutions following a net realisation of £13.7 billion in the previous quarter. In terms of securities issued by monetary and financial institutions, there was an increased realisation of certificates of deposits, from £17.9 billion in the previous quarter to £30.1 billion in the third quarter of 2011, combined with a switch to net realisations of medium term paper, from £7.5 billion net investment in the previous quarter to £4.0 net realisation in the latest quarter.
Financial derivatives showed net settlement receipts of £18.6 billion in the third quarter following net settlement payments of £9.2 billion in the previous quarter.
Other investment in the latest quarter recorded net outflows of £4.9 billion compared with net inflows of £42.5 billion in the previous quarter.
Other investment abroad recorded net investment of £105.7 billion in the third quarter of 2011, following net inflows (disinvestment) of £14.7 billion in the previous quarter. The switch to a net outflow was mainly due to UK residents switching from £4.6 billion net withdrawal of deposits abroad to £87.8 billion net deposits in the latest quarter; together with non-residents switching to £16.7 billion net borrowing on short term loans from UK monetary financial institutions following £10.7 billion net repayments.
Other investment in the UK showed a net investment of £100.8 billion in the third quarter of 2011, compared with net investment of £27.8 billion in the previous quarter. The rise in investment was driven by non-residents switching from £30.0 billion net withdrawal of foreign currency deposits with UK banks to £122.0 billion of net deposits in foreign currency. This was partially offset by a switch to net repayments of £24.6 billion by other sectors in the UK on short term loans, from net borrowing of £6.8 billion in the previous quarter, combined with lower borrowing of £18.6 billion by UK securities dealers, from £45.9 billion in the previous quarter.
Reserve assets showed net realisation of £1.0 billion in the third quarter of 2011, compared with net investment of £2.5 billion in the previous quarter.
The international investment position showed net external liabilities (i.e. liabilities exceed assets) of £245.5 billion at the end of the third quarter of 2011, compared with net external liabilities of £275.1 billion at the end of the previous quarter. UK assets abroad increased by £1,384.3 billion from the end of the second quarter of 2011 to a level of £11,309.1 billion at the end of the third quarter of 2011. The increase in the stock of UK assets in the third quarter of 2011 was mainly due to an increase in the stock of financial derivative assets. UK liabilities increased by £1,354.6 billion in the third quarter of 2011 to a level of £11,554.6 billion. The increase in UK liabilities was primarily due to an increase in the stock of financial derivatives liabilities.
Data in this release have been revised from the first quarter of 2010. Revisions tables are included in the balance of payments reference tables (Table R1, R2 and R3).
Trade in goods - Revisions to trade in goods from January 2010 reflect revised data from Her Majesty’s Revenue and 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 - Revisions for 2010 are due to the inclusion of final 2010 international trade in services survey. Revisions to the first two quarters of 2011 are due to revised source data from the International Trade in Services survey, International Passenger survey, Financial inquiries and other survey sources.
Current transfers - 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.
Capital account - 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.
Investment income, financial account and international investment position - Revisions from the first quarter of 2010 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. The incorporation of annual inquiry results for foreign direct investment has caused revisions from the first quarter of 2010. Additionally there are revisions from the first quarter of 2010 due to the incorporation of annual inquiry results for portfolio investment by UK pension funds, insurance companies, unit trusts and open ended investment companies and investment trusts. Revisions from the second quarter of 2010 reflect amended data and new estimates from the Bank for International Settlements and amended data from quarterly inquiries.
In accordance with the National Accounts revision policy, the current revisions period is open back to the first quarter of 2010.
Future revision period
The next balance of payments release, for the fourth quarter and annual of 2011, will have a revision period back to the first quarter of 2010.
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.
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:
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 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 Q3 2011 flash estimates of the current account at the end of November 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 3 January 2012.
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. 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
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 March 2004 (2003Q4) to December 2008 (2008Q3).
|Current account (seasonally adjusted)||£ million|
|Revisions between first publication and estimates three years later|
|Value in the 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:
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