The UK current account deficit narrowed to £2.8 billion in Quarter 2 (Apr to June) 2020, or 0.6% of gross domestic product (GDP), the narrowest since Quarter 2 2011 when it was £2.5 billion (0.6% GDP); the underlying UK current account deficit excluding non-monetary gold and other precious metals narrowed by £7.5 billion to £12.1 billion, or 2.5% of GDP, in Quarter 2 2020.
In Quarter 2 2020, total trade exports (£140.1 billion) and imports (£123.2 billion) continued to contract to their lowest levels since Quarter 2 2016 (£138.9 billion) and Quarter 3 (July to Sept) 2010 (£122.2 billion) respectively as governments introduced restrictions to combat the global coronavirus (COVID-19) pandemic; this significantly impacted trade in finished manufactured goods and the provision of transport and travel services.
The primary income deficit narrowed by £4.3 billion to £10.5 billion, or 2.2% of GDP, in Quarter 2 2020; this was because of a larger fall in payments to foreign investors on their UK investments than the fall in UK earnings on foreign investments and was mostly because of losses incurred through foreign direct investment (FDI).
The UK financial account recorded net inflows of £28.9 billion in Quarter 2 2020, as UK residents reduced their foreign assets by £260.7 billion while non-residents reduced their UK investments by £231.8 billion.
Following the exceptional gross financial flows during the heightened economic uncertainty of Quarter 1 2020, Quarter 2 2020 saw a partial unwinding of these movements as the demand for liquidity decreased and investors returned to equities as markets and prices stabilised.
The value of the UK’s net liability position widened slightly to £494.0 billion in Quarter 2 2020, from £483.0 billion in Quarter 1 2020, as UK residents and non-residents reduced their foreign assets by similar amounts.
The UK’s current account deficit is a measure of the country’s balance of payments with the rest of the world in trade, primary income and secondary income.
In Quarter 2 (Apr to June) 2020, the UK’s current account balance narrowed substantially from a deficit of £20.8 billion in Quarter 1 (Jan to Mar) 2020 to a deficit of £2.8 billion in Quarter 2 2020 or 0.6% of gross domestic product (GDP).
This was mostly because of erratic movements in the trading of precious metals, especially non-monetary gold, in Quarter 2 2020. UK residents exported non-monetary gold to non-residents as the price rose to record levels, widening the total trade surplus from £0.5 billion in Quarter 1 2020 to a surplus of £16.9 billion in Quarter 2 2020. This is the largest total trade surplus since quarterly records began in Quarter 1 1955.
In addition, there was a narrowing in the deficit on primary income from £14.9 billion in Quarter 1 2020 to £10.5 billion in Quarter 2 2020, which was mostly because of payments to foreign investors on their investments in the UK fell more sharply than UK earnings on investment abroad.
Partially offsetting these was a widening in the deficit on secondary income from £6.4 billion in Quarter 1 2020 to £9.1 billion in Quarter 2 2020, mostly because of an increase in UK payments to the rest of the world.
Trade in goods
The trade in goods balance was more volatile than usual over the course of 2019 and continues to influence UK trade statistics in 2020. With the increased financial market volatility as the coronavirus (COVID-19) spread around the world, trade in non-monetary gold has fluctuated from quarter to quarter as it is viewed as a store of wealth during uncertain times.
In Quarter 2 2020, there was further evidence of COVID-19 impacting on global supply chains as countries imposed restrictions. This continued disruption can be seen in the further decrease in gross exports to £74.0 billion, the lowest since Quarter 3 (July to Sept) 2016 (£73.5 billion), and gross imports to £87.1 billion, the lowest since Quarter 3 2010 (£84.0 billion).
Both exports and imports recorded decreases in:
finished manufactured goods, with exports decreasing by £11.9 billion and imports decreasing by £14.0 billion
oil, with exports decreasing by £2.7 billion and imports decreasing by £4.8 billion
other fuels, with exports decreasing by £0.1 billion and imports decreasing by £1.1 billion
Partially offsetting these decreases in exports was the UK switching from a net importer of non-specified goods including non-monetary gold in Quarter 1 (£1.3 billion) to a net exporter of £9.3 billion.
Trade in services
Figure 2 shows that the trade in services surplus widened in Quarter 2 2020 by £0.5 billion to £30.1 billion, as travel services switched to a surplus of £1.4 billion; this is the first occasion in the time series, which started in 1988. Overall, the importing of services decreased by £12.9 billion to £36.1 billion, the lowest since Quarter 2 2014 (£35.2 billion), while the export of services decreased by £12.5 billion to £66.2 billion, the lowest since Quarter 2 2016 when exports were £64.7 billion.
The decreases in both imports and exports reflect large decreases in transport and travel services as governments around the world introduced travel restrictions to stem the spread of COVID-19. The largest decreases in exports and imports were seen in:
travel services, with exports decreasing by £4.9 billion and imports decreasing by £9.4 billion
transport services, with exports decreasing by £2.4 billion and imports decreasing by £2.9 billion
other business services, with exports decreasing by £3.2 billion and imports decreasing by £0.4 billion
The primary income balance deficit – which records income the UK receives and pays on financial and other assets, along with compensation of employees – narrowed by £4.3 billion to £10.5 billion in Quarter 2 2020. Total credits decreased by £22.0 billion in Quarter 2 2020 to £16.0 billion, while total debits decreased by £26.3 billion to £26.6 billion.
All functional categories in investment income recorded declines in earnings for both credits and debits in Quarter 2 2020.
The most notable decreases were in foreign direct investment (FDI) where losses exceeded profits because of government restrictions in the UK and around the world. UK direct investment credits from overseas recorded losses of £2.0 billion, while debits to non-resident investors recorded slightly smaller losses of £0.4 billion; this is the first-time losses have been recorded since consistent records began in 1997.
Portfolio investment recorded decreases for UK credits of £2.2 billion and debits to non-residents of £3.8 billion in Quarter 2 2020. This was mostly because of decreases in dividend payments as businesses reduced or cancelled dividend payments to preserve cash.
Despite high levels of other investment, earnings have decreased as central banks have reduced interest rates to stimulate and support their economies through the global pandemic. UK credits decreased £4.4 billion while debits to non-residents decreased by £5.0 billion in Quarter 2 2020.Back to table of contents
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 financial account recorded a net inflow of £28.9 billion in Quarter 2 (Apr to June) 2020, from a net inflow of £1.0 billion recorded in Quarter 1 (Jan to Mar) 2020. The increase in the net inflow was because of UK residents reducing their foreign assets by £260.7 billion while foreign investors in the UK reduced their assets by £231.8 billion.
As markets stabilised, investors tentatively returned to investing in equities and bonds and reduced their deposit assets and loan liabilities as precautionary demand for liquidity diminished in Quarter 2 2020. Having increased net UK deposits abroad in Quarter 1 2020 by £349.3 billion, Quarter 2 2020 saw net withdrawals of £232.7 billion. Deposits from abroad held by UK residents showed a net increase in Quarter 1 2020 of £393.4 billion, while Quarter 2 2020 saw net withdrawals of £210.3 billion.Back to table of contents
The international investment position (IIP) examines the UK’s balance sheet with the rest of the world, measuring the difference between the net stock of assets and liabilities. In Quarter 2 (Apr to June) 2020, the IIP recorded a slight increase in the value of its net liability position to £494.0 billion from £483.0 billion in Quarter 1 (Jan to Mar) 2020.
Total UK foreign assets decreased by the end of Quarter 2 2020 by £399.4 billion to £12.7 trillion, and total UK liabilities decreased by £388.5 billion to £13.2 trillion.
Other investment recorded lower stock levels at the end of Quarter 2 2020, reflecting the capital flows described in Section 3: Financial account. During Quarter 2 2020, the British pound was broadly stable against major currencies with only a slight depreciation against the euro, leading to a comparatively small positive currency revaluation of £72.4 billion on other investment stocks estimated to be £4.7 trillion at the end of the quarter.
In addition, financial derivatives recorded decreases as financial markets steadied and trading volumes decreased.
As shown in Figure 7, stock market positions have partially recovered in Quarter 2 2020 and had a positive revaluation impact on the IIP, with a:
9.8% rise in the UK Financial Times Stock Exchange (FTSE) All Share, the largest quarter-on-quarter rise since Quarter 3 (July to Sept) 2010 (12.7%)
17.8% rise in the US Dow Jones, the largest rise since records began in Quarter 1 2000
13.8% rise in the EMU, the largest quarter-on-quarter rise since Quarter 1 2015 (18.4%)
17.8% rise in Japan’s Nikkei 225, the largest quarter-on-quarter rise since Quarter 1 2013 (19.3%)
Back to table of contents
Balance of payments
Dataset | Released 30 September 2020
Quarterly summary of balance of payments accounts including the current account, capital transfers, transactions, and levels of UK external assets and liabilities.
Balance of payments time series
Dataset | Released 30 September 2020
Quarterly summary of balance of payments accounts including the current account, capital transfers, transactions and levels of UK external assets and liabilities.
Balance of payments – revision triangles
Dataset | Released 30 September 2020
Quarterly summary information on the size and direction of the revisions made to the data covering a five-year period, UK.
Balance of payments
The balance of payments is a statistical statement that summarises transactions between residents and non-residents during a period. It consists of the current account, capital account and financial account.
The current account is made up of the trade in goods and services account, the primary income account and the secondary income account. The difference in the monetary value of these accounts is known as the current account balance. A current account balance is in surplus if overall credits exceed debits, and it is in deficit if overall debits exceed credits.
The capital account has two components: capital transfers and the acquisition (purchase) or disposal (sale) of non-produced, non-financial assets.
Capital transfers are those involving transfers of ownership of fixed assets, transfers of funds associated with the acquisition or disposal of fixed assets, and cancellation of liabilities by creditors without any counterparts being received in return. The sale or purchase of non-produced, non-financial assets covers intangibles such as patents, copyrights, franchises, leases and other transferable contracts, and goodwill.
The financial account covers transactions that result in a change of ownership of financial assets and liabilities between UK residents and non-residents, for example, the acquisitions and disposals of foreign shares by UK residents. The accounts are presented by the functional categories of direct investment, portfolio investment, other investment, financial derivatives and reserve assets.
International investment position
The international investment position (IIP) is a statement that shows at the end of the period the value and composition of UK external assets (foreign assets owned by UK residents) and identified UK external liabilities (UK assets owned by foreign residents). The framework of international accounts sets out that the IIP is also presented by functional category, consistent with primary income and the financial account.
In line with international standards, the Office for National Statistics’ (ONS’) headline trade statistics contain the UK’s exports and imports of non-monetary gold. Because a significant amount of the world’s trade in non-monetary gold takes place on the London markets, this trade can have a large impact on the size of and change in the UK’s headline trade figures.
Further information on precious metals and their impact can be found in the UK trade release.
Net errors and omissions
Although the balance of payments accounts are, in principle, balanced, in practice imbalances between the current, capital and financial accounts arise from imperfections in source data and compilation. This imbalance, a usual feature of balance of payments data, is labelled net errors and omissions.
A more detailed glossary (PDF, 123KB) of terms used in the balance of payments is also available.Back to table of contents
In response to the coronavirus (COVID-19) pandemic, we are working to ensure that we continue to publish economic statistics. For more information, please see COVID-19 and the production of statistics.
This release captures the first direct effects of the coronavirus pandemic and the government measures taken to reduce transmission of the coronavirus. Because of the disruption to business and implementation of these government measures, which include restrictions in movement, we faced an increased number of challenges in producing the UK balance of payments in Quarter 1 (Jan to Mar) 2020. These challenges include lower than usual response to surveys that feed into this estimate. Given the uncertainties in estimating the impact of the pandemic on the accounts, users should be aware of the wider than normal statistical discrepancy between the financial and non-financial accounts.
More detailed information on the challenges and the steps taken to mitigate them can be found in Coronavirus and the effects on the UK balance of payments.
Impact on response rates
Figure 8 highlights a decline in response rates for surveys that feed into the UK balance of payments in Quarter 2 (Apr to June) 2020. We have undertaken a significant amount of work to ensure that the effect on the quality of our estimates are mitigated as much as possible.
This includes focusing resources on main respondents and industries, methodology reviews including but not limited to seasonal adjustment, forecast and imputation, and the use of additional sources of data (in quality assurance). More information on the measures taken can be found in Section 3 of Coronavirus and the effects on the UK Balance of Payments.
After EU withdrawal
As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020.
After the transition period, we will continue to produce our UK Balance of Payments statistics in line with the UK Statistics Authority’s Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards. This is based on the International Monetary Fund’s (IMF’s) Balance of Payments Manual sixth edition (BPM6), until those standards are updated.
Data revision policy
In accordance with National Accounts Revisions Policy, data in this release have been revised back to Quarter 1 1997.
Balance of payments statistics are compiled from a variety of sources, produced in the national accounts Sector and Financial Accounts (SFA) framework. Some of the main sources used in the compilation include:
Overseas Trade Statistics (HM Revenue and Customs (HMRC))
International Trade in Services Survey (Office for National Statistics (ONS))
International Passenger Survey (ONS) – this was suspended from 16 March 2020
Foreign Direct Investment Survey (ONS and Bank of England (BoE))
Various financial inquiries (ONS and BoE)
Ownership of UK Quoted Shares Survey (ONS)
Trade is measured through both exports and imports of goods and services. Data are supplied by over 30 sources including several administrative sources, HMRC being the largest for trade in goods. The International Trade in Services Survey (ITIS), conducted by the ONS, is the largest single data source for trade in services.
The main source of information for UK foreign direct investment (FDI) statistics is the Annual FDI Survey; separate surveys are used to collect data on inward and outward FDI. This is combined with data from the BoE for all monetary financial institutions – such as banks – and other sources for property and public corporations in FDI. The statistics in this bulletin are compiled using the asset and liability measurement principle, which uses residency as the main distinction between outward and inward investments. It measures the direct investments of UK-resident companies – both UK parent companies and foreign-owned UK affiliates – with the rest of the world relative to the direct investments of non-UK resident companies held in the UK.
More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Balance of payments QMI.Back to table of contents
Impact of coronavirus (COVID-19) on data quality
This release captures the first direct effects of the coronavirus (COVID-19) pandemic and lockdown restrictions. We faced an increased number of challenges in producing the UK balance of payments for Quarter 2 (Apr to June) 2020, including lower than usual response to surveys that feed into the estimates.
Given the uncertainties in estimating the impact of the pandemic on the accounts, users should be aware of the wider than normal statistical discrepancy between the financial and non-financial accounts. UK balance of payments data and international investment position (IIP) estimates for Quarter 2 2020 are therefore subject to more uncertainty than usual because of these data collection challenges. More information on the challenges faced is available in Coronavirus and the effects on the UK Balance of Payments.
More detailed information on the strengths and limitations of the UK balance of payments data is available in the Balance of payments QMI.Back to table of contents
Contact details for this Statistical bulletin
Telephone: +44 (0)1633 456106