Balance of payments, UK: April to June 2018

A measure of cross-border transactions between the UK and rest of the world. Includes trade, income, capital transfers and foreign assets and liabilities.

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This is an accredited national statistic.

Contact:
Email Richard McCrae

Release date:
28 September 2018

Next release:
21 December 2018

1. Main points

  • The UK’s current account deficit was £20.3 billion (3.9% of gross domestic product (GDP)) in Quarter 2 (Apr to June) 2018, a widening of £4.6 billion from a revised deficit of £15.7 billion (3.0% of GDP) in Quarter 1 (Jan to Mar) 2018 and the widest deficit since Quarter 2 2017.

  • The UK’s current account deficit widened in Quarter 2 2018, due mainly to a widening of the trade in goods and primary income deficits.

  • The total trade in goods deficit widened by £2.7 billion to £34.7 billion in Quarter 2 2018, from £32.0 billion in Quarter 1 2018, the largest increase to the deficit since Quarter 3 (July to Sept) 2016 (£8.0 billion); this can be partly attributed to movements in erratics, which include aircraft and non-monetary gold, and an increase in the price of oil.

  • The primary income deficit widened by £2.1 billion in Quarter 2 2018 to £8.8 billion from a revised deficit of £6.7 billion in Quarter 1 2018; this was due to payments on investment income rising more than receipts.

  • The international investment position shows UK net liabilities of £247.6 billion at the end of Quarter 2 2018.

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2. Things you need to know about this release

In accordance with the National Accounts Revisions Policy, the revision period for this release is open from Quarter 1 (Jan to Mar) 2017.

A brief introduction to the UK Balance of Payments (PDF, 92KB) and glossary (PDF, 123KB) provides an overview of the concepts and coverage of the UK Balance of Payments using the Balance of Payments Manual sixth edition. Further information on the methods are available in the Balance of payments (BoP) Quality and Methodology Information (QMI) report.

Also available is an overview of how movements in foreign exchange rates can impact the balance of payments and international investment position.

Estimates derived from the International Passenger Survey (IPS) are used to help measure exports and imports of travel services. The IPS has recently transferred data collection from paper forms to tablet computers. While initial analysis of the new data found no detectible discontinuities, we are continuing to check the data. Therefore, headline trade and other national accounts estimates will continue to include some forecast data for exports and imports of travel services in the most recent periods. More information is available in the Overseas travel and tourism release.

Throughout this release Quarter 1 refers to January to March, Quarter 2 refers to April to June, Quarter 3 refers to July to September, and Quarter 4 refers to October to December.

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3. Largest widening of the UK current account deficit since Quarter 2 2017

In Quarter 2 (Apr to June) 2018, the UK current account deficit was £20.3 billion and equates to 3.9% of gross domestic product (GDP) at current market prices. This was a widening from a revised deficit of £15.7 billion (3.0% of GDP) in Quarter 1 (Jan to Mar) 2018 (Figure 1).

The widening to the current account deficit was due to an increase of the deficit on total trade, which increased by £2.8 billion to £6.1 billion and was the largest increase since Quarter 1 2017, along with an increase of the deficit on primary income, which widened £2.1 billion to £8.8 billion in Quarter 2 2018.

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4. Imports of goods reaches record high

The total trade deficit widened to £6.1 billion in Quarter 2 (Apr to June) 2018 from a deficit of £3.3 billion in Quarter 1 (Jan to Mar) 2018 (Figure 2). The widening to the total trade deficit was driven by an increase to imports of goods, which has reached a record high of £120.6 billion in Quarter 2 2018.

The trade in goods deficit in Quarter 2 2018 was £34.7 billion, a widening from the deficit of £32.0 billion in Quarter 1 2018.

The widening to the trade in goods deficit was driven primarily by an increase to imports of goods, which increased by £2.4 billion to stand at a record high of £120.6 billion in Quarter 2 2018. Exports of goods recorded a slight decrease of £0.3 billion in Quarter 2 2018 to £85.9 billion.

Within imports of goods, the largest increases recorded in Quarter 2 2018 were:

  • imports of oil, which increased by £1.3 billion to £10.4 billion; caused mainly by increasing oil prices

  • imports of unspecified goods (including non-monetary gold), which increased by £1.0 billion to £2.1 billion

  • imports of finished manufactured goods, which increased by £0.4 billion to £62.4 billion

Slightly offsetting the increases was a decrease to imports of other fuels, which decreased by £0.7 billion to £3.1 billion in Quarter 2 2018.

Exports of goods recorded a decrease of £0.3 billion to £85.9 billion in Quarter 2 2018. Within exports of goods, exports of finished manufactured (including aircraft) goods fell by £1.4 billion to £46.0 billion and exports of semi-manufactured goods decreased by £0.3 billion to £22.5 billion. Partially offsetting these decreases was an increase to exports of oil, which increased by £1.0 billion to £8.1 billion in Quarter 2 2018, some of which can be attributed to an increase in the price of oil; along with several smaller increases elsewhere.

There was little change in the total trade in services surplus, which recorded a slight decrease of £0.2 billion to £28.6 billion in Quarter 2 2018. This was due to imports increasing by £0.2 billion, slightly offset by exports increasing by £0.1 billion.

Within trade in services, exports of financial services reached a record high of £16.0 billion along with personal, cultural and recreational services, which recorded a record high of £1.3 billion. These records were offset by decreases elsewhere.

Notes for: Imports of goods reaches record high

  1. Users of the balance of payments and international investment position should be aware that the data in this release are all in current prices, over time price inflation will naturally lead to an increase in values.
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5. Base rate rises beginning to impact investment income

The primary income deficit widened £2.1 billion in Quarter 2 (Apr to June) 2018 to £8.8 billion from a revised deficit of £6.7 billion in Quarter 1 (Jan to Mar) 2018 (Figure 3); with payments to non-UK residents on their investments in the UK increasing by £2.9 billion, which was offset slightly by UK residents’ receipts on their investments abroad increasing by just £0.8 billion.

The widening to the deficit on primary income was due mostly to increased payments on investment income, which increased by £2.9 billion to £57.8 billion in Quarter 2 2018.

Within investment income, earnings on direct investment abroad (credits) decreased by £1.3 billion to £23.1 billion in Quarter 2 2018. Despite the quarter-on-quarter fall, FDI credits in Quarter 2 2018 were £3.3 billion higher when compared with the same quarter in 2017; this marks the second consecutive quarter that the value of FDI credits was above £20.0 billion.

In contrast, FDI debits increased over Quarter 2 2018 to £19.2 billion, a rise of £1.0 billion from Quarter 1 2018. The value of FDI debits in Quarter 2 2018 is the highest quarterly estimate since comparable records began in 1997.

The fall in FDI credits and rise in debits in Quarter 2 2018 resulted in the surplus on FDI earnings falling to £3.9 billion, down from a surplus of £6.2 billion in the previous quarter. However, the surplus on FDI earnings in Quarter 2 2018 is broadly in line with that recorded in the same quarter of 2017 (£4.0 billion). The surplus on FDI earnings in Quarter 2 2018 also marks the eighth consecutive quarter of a surplus on UK FDI, following a period of deficits recorded during the last quarter of 2015 and first half of 2016.

Earnings on other investment abroad (credits) increased by £1.8 billion to £10.5 billion in Quarter 2 2018, the highest since Quarter 3 (July to Sept) 2011 (£10.9 billion); while payments to foreign investors (debits) increased by £2.2 billion to £13.1 billion, the highest since Quarter 3 2011 (£13.4 billion). Evidence of interest rate rises filtering through has had an impact on the increases observed in Quarter 2 2018.

Since the global financial crisis, interest rates were generally in decline as a response to market conditions. There was an exception when the European Central Bank (ECB) base rate increased from 1.00% at the beginning of 2011 to 1.50% in Quarter 3 2011. However, it was then reduced back to 1.00% in Quarter 4 (Oct to Dec) 2011 before being reduced further to its current level of 0.00%.

Following a period of stability there are now tentative movements to increase interest rates in some economies, most notably the American FED base rate was increased at the end of 2015 and has incrementally increased to reach 2.00% in Quarter 2 2018. These interest rate rises now appear to be filtering through.

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6. Portfolio investment records largest inflow since Quarter 4 2008

The total financial account showed a net inflow (that is, more money flowing into the UK) of £14.4 billion in Quarter 2 (Apr to June) 2018. This was an increase of £11.0 billion to the revised net inflow of £3.4 billion in Quarter 1 (Jan to Mar) 2018, which recorded the smallest inflow since Quarter 3 (July to Sept) 2011 (£2.6 billion) (Figure 5).

Direct investment recorded a net inflow (that is, more money flowing into the UK) of £11.3 billion in Quarter 2 2018 following a net inflow of £19.2 billion in Quarter 1 2018.

Portfolio investment recorded a net inflow (that is, more money flowing into the UK) of £114.3 billion in Quarter 2 2018, the largest inflow since Quarter 4 (Oct to Dec) 2008.

Within portfolio investment, net debt securities recorded a net inflow of £57.8 billion and net equities recorded a net inflow of £56.4 billion in Quarter 2 2018. This was due partly to UK portfolio investment abroad recording a dis-investment of £66.0 billion in Quarter 2 2018; the largest since Quarter 3 2011 (£99.9 billion) as UK investors moved away from investments in foreign debt securities and from the ownership of foreign shares.

Other investment recorded a net outflow (that is, more money flowing out of the UK) of £119.6 billion in Quarter 2 2018, compared with a net outflow of £38.1 billion in Quarter 1 2018. This is the largest outflow since Quarter 1 2015 (£129.4 billion) as foreign investors moved away from investing in foreign currency deposits but continued to invest in debt securities.

Financial derivatives and employee stock options showed net settlements payments of £10.5 billion in Quarter 2 2018, following net settlement receipts of £20.6 billion in Quarter 1 2018.

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7. The UK direct investment position falls to a record low as stock market prices recover

The international investment position (IIP) showed net external liabilities (that is, liabilities exceed assets) of £247.6 billion at the end of Quarter 2 (Apr to June) 2018, compared with net external liabilities of £271.1 billion at the end of Quarter 1 (Jan to Mar) 2018 (Figure 6).

UK assets increased by £169.4 billion to £10,821.0 billion in Quarter 2 2018. UK external liabilities increased by £145.9 billion in Quarter 2 2018 to £11,068.7 billion.

UK foreign direct investment (FDI) assets reached £1,619.9 billion in Quarter 2 2018. The value of FDI assets in the latest quarter is the highest since records began in 1987 and was £23.5 billion higher compared with Quarter 1 2018. The increase in FDI assets was driven by the revaluation of equity within the oil sector, possibly as a result of an increase in the price of oil.

UK FDI liabilities also reached a new record high in Quarter 2 2018, with a value of £1,690 billion, a £40.3 billion increase compared with the previous quarter, which was spread between several sectors.

The UK’s net FDI position was negative for a second consecutive period in Quarter 2 2018, falling to a record net liability position of £70.0 billion from a net liability position of £53.1 billion in Quarter 1 2018. The UK’s net FDI position has followed a long-term downward trend since Quarter 4 (Oct to Dec) 2011, which has largely been due to increases in FDI liabilities exceeding increases in assets as non-residents continue to invest in the UK.

The stock of UK assets and liabilities with the rest of the world is not only influenced by flows; movements in exchange rates and price revaluations can also impact these stocks. In Quarter 2 2018, exchange rate movements showed to have a greater impact than flows on the overall position (Figure 7).

Although the stock of UK assets rose by £98.5 billion in Quarter 2 2018, the net acquisition of financial assets (flows) fell by £121.2 billion. The main driver behind the rising stock of UK assets was exchange rate movements. Currency changes contributed £237.7 billion to the change in stock in Quarter 2 2018.

Figure 8 presents sterling exchange rates against the currencies of major trading partner countries at the close of markets at each quarter end.

At the end of Quarter 2 2018, the sterling exchange rate depreciated against a basket of foreign currencies when compared with the end of Quarter 1 2018.

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8. Quality and methodology

The Balance of payments (BoP) Quality and Methodology Information report contains important information on:

  • the strengths and limitations of the data and how it compares with related data

  • uses and users of the data

  • how the output was created

  • the quality of the output including the accuracy of the data

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