Balance of payments, UK: April to June 2019

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

This is the latest release. View previous releases

This is an accredited national statistic.

Contact:
Email Richard McCrae

Release date:
30 September 2019

Next release:
20 December 2019

1. Main points

  • The UK current account deficit narrowed by £7.9 billion to £25.2 billion in Quarter 2 (Apr to June) 2019, or 4.6% of gross domestic product (GDP).

  • The UK total trade deficit halved to £11.4 billion in Quarter 2 (Apr to June) 2019 as imports returned to normal levels; this equates to 2.1% of GDP and was the main contributor to the UK’s narrowing current account deficit.

  • The primary income deficit widened by £3.7 billion to £7.1 billion, or 1.3% of GDP in Quarter 2 (Apr to June) 2019; this was because of increased payments to foreign investors on their direct investments in the UK.

  • The financial account recorded a net inflow into the UK of £21.1 billion in Quarter 2 (Apr to June) 2019, an increase from a net inflow of £15.1 billion in Quarter 1 (Jan to Mar) 2019.

  • The value of the UK’s net liabilities was £302.1 billion at the end of Quarter 2 (Apr to June) 2019, a narrowing from net liabilities of £350.6 billion at the end of Quarter 1 (Jan to Mar) 2019.

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2. Things you need to know about this release

In accordance with the National Accounts Revisions Policy, data in this release have been revised from 1948.

A detailed assessment of changes being introduced to balance of payments annual estimates for 1997 to 2016 can be found in an article published on 30 August 2019.

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 sixth edition of the Balance of Payments and International Investment Position Manual.

Further information on the methods are available in the Balance of payments 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. Analysis of IPS data has detected no discontinuities as a result of the change in data collection mode, therefore we have replaced forecasts used in recent periods with IPS data within headline trade estimates. Please see our Overseas travel and tourism release for more information about the IPS.

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. The UK’s current account deficit narrowed to £25.2 billion, or 4.6% of gross domestic product, in Quarter 2 (Apr to June) 2019

The UK’s current account deficit – a measure of the country’s balance of payments with the rest of the world in trade, primary income and secondary income – narrowed by £7.9 billion to £25.2 billion in Quarter 2 (Apr to June) 2019, or 4.6% of gross domestic product (GDP). This is the first quarter the current account deficit has narrowed since Quarter 3 (July to Sept) 2018.

The narrowing current account deficit in Quarter 2 2019 was because of the narrowing deficit on trade in goods, which narrowed by £13.9 billion. Partially offsetting this was the trade in services surplus narrowing by £2.6 billion and the primary income deficit widening by £3.7 billion because of the increased payments on investment income.

The UK’s total trade deficit narrowed to £11.4 billion in Quarter 2 2019, or 2.1% of GDP (as Figure 2 shows).

The total trade deficit narrowed as the value of total imports decreased by £21.2 billion, whereas the value of total exports decreased by a smaller £9.9 billion. As stated earlier, the narrowing of the trade deficit was because of a narrowing of the trade in goods deficit (of £13.9 billion) as imports returned to more normal levels from those seen in Quarter 1 (Jan to Mar) 2019, partially offset by a narrowing trade in services surplus (of £2.6 billion).

Trade in goods

The value of goods imported narrowed by £18.6 billion to £119.6 billion in Quarter 2 2019. Within imports of goods, the largest decreases recorded in Quarter 2 2019 were:

  • imports of unspecified goods (including non-monetary gold), which decreased by £7.4 billion, returning to more normal levels
  • imports of finished-manufactured goods, which decreased by £4.5 billion
  • imports of semi-manufactured goods, which decreased by £4.3 billion

Exports of goods recorded a decrease of £4.6 billion to £85.4 billion, with the largest decreases being recorded in finished manufacturing goods (£3.2 billion) and semi-manufactured goods (£2.3 billion). The decreases were slightly offset by an increase to unspecified goods, which increased by £1.1 billion to £1.3 billion.

Trade in services

The trade in services surplus narrowed by £2.6 billion to £22.7 billion in Quarter 2 2019, the lowest surplus since Quarter 3 2015 when it was £21.1 billion. This was because of negative growth in exports, which recorded a fall of £5.3 billion to £71.5 billion along with a decrease in imports of £2.7 billion to £48.7 billion.

Within exports of services, other business services accounted for the largest fall: £2.8 billion to £23.1 billion. This was followed by a fall of £1.1 billion in intellectual property services to £3.6 billion and a fall of £0.9 billion in financial services to £14.3 billion in Quarter 2 2019.

The largest decrease to imports were recorded in other business services, of £1.9 billion to £16.0 billion, driven by provision of customised and non-customised research and development services. Imports of Intellectual property decreased by £1.2 billion to £2.0 billion. The total value of imported travel services accounted for the largest increase: £0.4 billion to £13.4 billion in Quarter 2 2019.

Notes for Trade in goods and Trade in services

  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.

Primary income deficit widens due to increased payments to foreign investors

The primary income balance deficit – which records income the UK receives and pays on financial and other assets, along with compensation of employees – widened by £3.7 billion to £7.1 billion in Quarter 2 (Apr to June) 2019 because of the increased payments to foreign investors on investment income.

The widening of the UK’s deficit on the primary income account is mostly because of increased payments to foreign investors on their direct investment in the UK and increased payments on other investment in the UK, as shown in Figure 3.

Payments on investment income increased by £7.3 billion to £65.5 billion in Quarter 2 2019. This was mostly because of the value of UK foreign direct investment (FDI) debits increasing considerably from £15.4 billion in Quarter 1 2019 to £19.5 billion in Quarter 2 2019 (Figure 4), an increase of £4.1 billion. This was the largest quarterly increase in the value of FDI debits since Quarter 3 2018, when debits rose by £4.8 billion.

The value of UK (FDI) credits increased by £0.7 billion (from £26.0 billion to £26.7 billion) between Quarter 1 2019 and Quarter 2 2019. This was its second consecutive quarterly increase, though it was noticeably less than the £5.0 billion increase between Quarter 4 (Oct to Dec) 2018 and Quarter 1 2019.

The substantial increase in FDI debits and comparatively smaller increase in (FDI) credits contributed to the UK’s net FDI earnings balance having its largest quarterly decrease, of £3.4 billion (from £10.6 billion to £7.2 billion), since Quarter 4 2015. Despite the decrease, the UK’s net FDI earnings balance remained positive for the twelfth consecutive quarter.

Both credits and debits on other investment increased in Quarter 2 2019 to levels last seen in Quarter 1 2009. UK earnings on other investment abroad increased by £2.2 billion to £16.1 billion, while foreign earnings on other investment in the UK increased by £2.6 billion to £18.6 billion. Both of these can be attributed to an increase in earnings on foreign currency deposits. Changes to earnings on investment can be impacted by several factors. For example, a change in interest rates, currency exchange rates and the levels invested can have an impact on the amount of earnings in any given quarter.

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4. Other investment accounted for the majority of UK net inflows in Quarter 2 (Apr to June) 2019

The UK has run a current account deficit in each quarter since Quarter 3 (July to Sept) 1998 or, when considering annual totals, 1983. A current account deficit places the UK as a net borrower with the rest of the world, indicating that overall expenditure in the UK exceeds national income. The UK must attract net financial inflows to finance its current (and capital) account deficit, which can be achieved through either disposing of overseas assets to overseas investors or accruing liabilities with the rest of the world.

The total financial account showed a net inflow (that is, more money flowing into the UK) of £21.1 billion in Quarter 2 (Apr to June) 2019; this is an increase from a revised net inflow of £15.1 billion in Quarter 1 (Jan to Mar) 2019. The net inflow in the latest quarter reflected larger investment by overseas investors in UK-based assets than that of UK resident’s investment in overseas assets.

Within the financial account, the other investment category recorded the largest net inflow in Quarter 2 2019, amounting to £16.6 billion. This happened as UK residents reduced their investment in loans to the rest of the world and withdrew deposits held overseas.

Partially offsetting other investment net inflows were net outflows in portfolio investment of £9.6 billion, with UK residents investing in foreign debt securities of £36.3 billion slightly offset by foreign investors increasing their investment in UK debt securities by only £18.8 billion.

Within direct investment flows, net inflows of £5.2 billion were recorded in Quarter 2 2019 as UK residents recorded flows of £20.3 billion abroad but foreign investors recorded flows of £25.4 billion into the UK. Inward foreign direct investment (FDI) flows were influenced by large mergers and acquisitions transactions, as documented in the recent Mergers and acquisitions Quarter 2 2019 release.

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5. The UK net international investment position narrows in the latest quarter

The international investment position (IIP) – which measures the UK’s international balance sheet with the rest of the world – recorded increases in the value of both UK overseas assets and liabilities. The UK’s stock of overseas assets was valued at £11.6 trillion at the end of Quarter 2 (Apr to June) 2019 (up £592.5 billion), while UK liabilities to overseas residents were valued at £11.9 trillion (up £544.0 billion). These increases resulted in the UK’s net external liability position (that is, liabilities exceeding assets) narrowing to £302.1 billion at the end of Quarter 2 2019 from net liabilities of £350.6 billion in Quarter 1 (Jan to Mar) 2019.

The increase in the value of assets was because of all functional categories recording increases in Quarter 2 2019, the largest being financial derivatives and employee stock options, which recorded an increase of £346.4 billion.

Elsewhere, UK portfolio investment assets increased in value by £124.3 billion, recording assets of £2733.0 billion at the end of Quarter 2 2019. This was a result of both the value of UK residents holdings of foreign equities and the value of foreign debt securities increasing by £64.3 billion and £60.0 billion respectively. However, these increases are mainly attributable to revaluations and not new investment. When looking at the financial account (Table J in the accompanying dataset) we can see that UK residents were actually net sellers of foreign equities in Quarter 2 2019 to the value of £9.3 billion. The majority of the increase was because of exchange rate movements and, to a lesser extent, stock price changes as shown in Figure 7.

Within UK liabilities; Quarter 2 2019 saw the value of foreign investors’ portfolio investments increasing. Similar to UK residents, non-residents were net sellers of UK equities to the value of £1.6 billion. However, by the end of Quarter 2 2019, the value of their UK equity holdings had increased by £21.0 billion. The increase in value can be attributed to the rising share prices. The value of UK liabilities on debt securities also increased (£55.6 billion), which can be partly attributed to new investment and price changes.

Foreign direct investment (FDI) assets increased £15.7 billion from £1,705.6 billion in Quarter 1 2019 to £1,721.3 billion in Quarter 2 2019, continuing the upward trend in the value of FDI assets since Quarter 1 2016.

UK companies reported higher FDI liabilities in Quarter 2 2019, with the value increasing £34.3 billion (from £1,782.2 billion in Quarter 1 2019 to £1,816.6 billion in Quarter 2 2019). This is a continuation of the general upwards trend in the value of FDI liabilities.

As a consequence of the values of FDI assets and liabilities increasing by similar amounts, the UK’s FDI net IIP has been broadly stable. The net FDI position fell from a net liability position of £76.6 billion in Quarter 1 2019 to a record net liability position £95.2 billion in Quarter 2 2019 (a decline of £18.6 billion). This was the eighth consecutive quarter where the UK had a negative net FDI position.

Financial derivatives and employee stock options liabilities increased by £351.3 billion in Quarter 2 2019, offsetting the increase recorded in financial derivatives and employee stock options in UK assets resulting in an overall net decrease of £4.9 billion.

Weakening sterling boosts the value of UK foreign assets

Changes in the value of UK overseas asset positions can be influenced by several factors, including investment flows, currency movements and price revaluations (such as stock market movements). Figure 7 presents estimates of changes in the value of UK overseas assets, broken down by these different factors (excluding financial derivatives and reserves).

By the end of Quarter 2 2019, sterling had weakened against most other major currencies. The recent depreciation in sterling had a positive impact on the IIP (+£272.0 billion) as the value of foreign denominated assets increases when converted back into sterling. As shown in Figure 8, the sterling exchange rate depreciated by 2.3% against the dollar in Quarter 2 2019 quarter-on-quarter, 3.7% against the euro, and 4.9% against the yen.

Figure 8: Sterling weakens against major currencies

Sterling exchange rates with major trading partners Quarter 3 (Jul to Sept) 2014 to Quarter 2 2019

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Source: Office for National Statistics – Balance of Payments

Notes

  1. Q1 refers to Quarter 1 (Jan to Mar), Q2 refers to Quarter 2 (Apr to June), Q3 refers to Quarter 3 (July to Sept) and Q4 refers to Quarter 4 (Oct to Dec).

Data download

In addition to the positive impact of exchange rates, the UK’s net IIP benefitted from foreign stock markets continuing to recover from losses at the end of 2018. Following a positive impact of £150.8 billion in Quarter 1 2019, there was a positive impact of £49.8 billion in Quarter 2 2019.

Summary of revisions

Table 1 shows revisions to the current account balance as a percentage of gross domestic product (GDP) from Quarter 1 (Jan to Mar) 2016 to Quarter 1 (Jan to Mar) 2019.

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6. Quality and methodology

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

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