Balance of Payments, UK: Quarter 2 (Apr to June) 2016

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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6 December 2016 13:45

A processing error has been identified in the exports and imports within the "erratics" series (which includes non-monetary gold, silver, precious stones, aircraft and ships) of UK Trade, affecting the period January 2015 to September 2016.

The error does not affect any series before January 2015, nor does it affect the trade in services series. Corrections to trade data will be incorporated into the UK Trade release on 9 December 2016. Because the “erratics” series is volatile, a total trade series that excludes erratics may provide a better guide to the emerging trade picture. We will therefore include a total trade in goods and services excluding erratics series in the next release to supplement the trade in goods excluding erratics series already available. The correction of the erratics series will also affect the quarterly Balance of Payments from Quarter 1 (Jan to Mar) 2015 to Quarter 2 (Apr to June) 2016, and it will change some expenditure components of the Quarterly National Accounts for the same period. There is no impact on total GDP, as the corrections to components of trade and the acquisitions less disposals of valuables offset each other. However, the composition of the expenditure estimate of GDP will change from what was published in the second estimate of GDP Quarter 3 (July to Sept) 2016.

The correction will be incorporated into the Quarterly National Accounts and Balance of Payments on 23 December, as part of the Quarter 3 2016 release.

The correction will be incorporated into the next annual Blue Book and Pink Book publication during October 2017, which is the next available opportunity. Some analysis and ad-hoc tables providing the impact on geographic tables within chapter 9 of the Pink Book (current account geographic tables) will be issued in early 2017. This analysis will include all current account annual revisions published as part of the Balance of Payments Quarter 3 2016 release.

The appended table of key aggregates of UK Trade and Balance of Payments gives an indication of the impact of correcting this error. This incorporates the use of some actual data in place of a forecast for September 2016. However, other data revisions to trade data will be included in the UK Trade release on 9 December 2016.

We apologise for any inconvenience.

Trade balance - published Trade balance - indicative new values Revision
2015 -38674 -31933 6741
2015 Q1 -9938 -10420 -482
Q2 -8,183 -7,219 964
Q3 -9,976 -8,102 1,874
Q4 -10,577 -6,192 4,385
2016 Q1 -9,975 -9,415 560
Q2 -12,691 -9,929 2,762
Q3 -11,047 -17,001 -5,954
2015 Jan -2,940 -3,482 -542
Feb -3,590 -3,889 -299
Mar -3,408 -3,049 359
Apr -2,977 -2,929 48
May -2,164 -2,044 120
Jun -3,042 -2,246 796
Jul -4,722 -3,526 1,196
Aug -3,338 -2,578 760
Sep -1,916 -1,998 -82
Oct -3,870 -3,852 18
Nov -3,986 -1,968 2,018
Dec -2,721 -372 2,349
2016 Jan -4,442 -1,423 3,019
Feb -3,587 -3,454 133
Mar -1,946 -4,538 -2,592
Apr -2,983 -3,918 -935
May -4,056 -1,797 2,259
Jun -5,652 -4,214 1,438
Jul -2,058 -4,201 -2,143
Aug -3,768 -6,211 -2,443
Sep -5,221 -6,589 -1,368


Current account balance - published Current account balance - indicative new values Revision Current account balance as % of GDP - published Current account balance as % of GDP - indicative new values
2015 -100,167 -93,426 6741 -5.4 -5.0
2015 Q1 -24,972 -25,454 -482 -5.4 -5.5
Q2 -21,964 -21,000 964 -4.7 -4.5
Q3 -20,490 -18,616 1,874 -4.4 -4.0
Q4 -32,741 -28,356 4,385 -7.0 -6.0
2016 Q1 -26,999 -26,439 560 -5.7 -5.6
Q2 -28,684 -25,922 2,762 -5.9 -5.4
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This is an accredited national statistic.

Contact:
Email Craig Taylor

Release date:
30 September 2016

Next release:
23 December 2016

1. Main points

The UK’s current account deficit was £28.7 billion in Quarter 2 (April to June) 2016, up from a revised deficit of £27.0 billion in Quarter 1 (January to March) 2016. The deficit in Quarter 2 2016 equated to 5.9% of gross domestic product (GDP) at current market prices, up from 5.7% in Quarter 1 2016.

The widening in the current account deficit was mainly due to a widening in the deficits on trade and secondary income, partially offset by a narrowing in the primary income deficit.

The total trade deficit widened to £12.7 billion in Quarter 2 2016, from £10.0 billion in Quarter 1 2016. This was due to the trade in goods deficit widening by £1.8 billion and a £0.9 billion narrowing in the trade in services surplus.

The primary income deficit narrowed to £10.0 billion in Quarter 2 2016, from £11.5 billion in Quarter 1 2016. The narrowing was mainly due to a narrowing in the deficit on direct investment, partially offset by a slight widening in the deficit on portfolio investment.

The deficit on secondary income widened by £0.5 billion, from £5.5 billion in Quarter 1 2016 to £6.0 billion in Quarter 2 2016. This was due to payments increasing while receipts were virtually unchanged.

The financial account recorded a net inflow of £14.5 billion during Quarter 2 2016.

The international investment position recorded UK net liabilities of £57.0 billion at the end of Quarter 2 2016.

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2. Review of how economic statistics are published

From January 2017 we are improving the way we publish economic statistics, with related data grouped together under new "theme" days. This will increase the coherence of our data releases and involve minor changes to the timing of certain publications. For more information see Changes to publication schedule for economic statistics.

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3. Summary

The balance of payments summarises the economic transactions of the UK with the rest of the world. These transactions can be broken down into 3 main accounts: the current account, the capital account and the financial account.

The current account comprises the trade in goods and services account, the primary income account and 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 in deficit if overall debits exceed credits.

The sum of the current and capital account balances are equal to the balance of the financial account. As the capital account is relatively small in comparison, the current account and financial account can be said to be counterparts.

The current account balance plus the capital account balance measures the extent to which the UK is a net lender (that is, in surplus) or net borrower (that is, in deficit). The UK has run a combined current and capital account deficit in every year since 1983, and every quarter since Quarter 3 1998.

Quarter 2 2016 overview

In Quarter 2 2016, the UK was a net borrower of £29.0 billion, up from £26.5 billion in Quarter 1 2016. This was due to a widening in the current account deficit of £1.7 billion and a switch in the capital account from a surplus of £0.5 billion in Quarter 1 2016 to a deficit of £0.3 billion in Quarter 2 2016.

The £2.7 billion widening in the total trade deficit was mainly due to a widening of £1.8 billion in the trade in goods deficit, as imports increased by £4.4 billion while exports only increased by £2.6 billion from Quarter 1 2016. Additionally there was a £0.9 billion narrowing in the trade in services surplus. The narrowing in the trade in services surplus was due to exports decreasing by £0.5 billion and imports increasing by £0.4 billion.

The £1.6 billion narrowing in the total primary income deficit from Quarter 1 2016 was mainly due to a £1.8 billion narrowing in the direct investment deficit. Partially offsetting the improvement in the direct investment balance in Quarter 2 2016 was a slight widening in the deficit on portfolio investment income of £0.2 billion. The other investment deficit was virtually unchanged at £2.7 billion.

The £0.5 billion widening in the secondary income deficit in Quarter 2 2016 to £6.0 billion was due to payments increasing while receipts were virtually unchanged.

Notes for Summary

  1. 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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4. Current account balances as percentage of GDP

The current account deficit equated to 5.9% of gross domestic product (GDP) at current market prices in Quarter 2 2016, compared with 5.7% in Quarter 1 2016. The deficit on trade in goods and services was equivalent to 2.6% of GDP in Quarter 2 2016, compared with 2.1% in Quarter 1 2016. The deficit on primary income equated to 2.1% of GDP in Quarter 2 2016, compared with a deficit equivalent to 2.4% in Quarter 1 2016. The deficit on secondary income equated to 1.2% of GDP in Quarter 2 2016, unchanged from Quarter 1 2016.

Notes for Current account balances as percentage of GDP

  1. 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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5. Current account with EU and non-EU countries (Table C)

A current account deficit of £24.6 billion was recorded with the EU in Quarter 2 2016, compared with a deficit of £26.8 billion in Quarter 1 2016. This was mainly due to the deficit on total trade narrowing from £17.5 billion in Quarter 1 2016 to £16.4 billion in Quarter 2 2016. Additionally, the deficit on primary income narrowed from £6.8 billion in Quarter 1 2016 to £5.7 billion in Quarter 2 2016. Partially offsetting these was a very slight widening in the deficit on secondary income.

The current account deficit with non-EU countries widened from £0.2 billion in Quarter 1 2016 to £4.1 billion in Quarter 2 2016. This was mainly due to the total trade surplus narrowing from £7.5 billion in Quarter 1 2016 to £3.7 billion in Quarter 2 2016. Additionally, the deficit on secondary income widened from £2.9 billion in Quarter 1 2016 to £3.5 billion in Quarter 2 2016. Partially offsetting these was a narrowing in the deficit on primary income from £4.8 billion in Quarter 1 2016 to £4.3 billion in Quarter 2 2016.

Notes for Current account with EU and non-EU countries (Table C)

  1. 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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6. Trade in goods (Table E) and services (Table F)

Trade in goods covers transactions in general merchandise for which changes of ownership occur between UK residents and the rest of the world. General merchandise (with some exceptions) refers to moveable goods.

The trade in goods deficit in Quarter 2 2016 was £34.7 billion, compared with a deficit of £32.9 billion recorded in Quarter 1 2016. The widening in the deficit in Quarter 2 2016 was due to imports rising by £4.4 billion, compared with a rise in exports of £2.6 billion. The increase in imports was spread across all components but primarily due to a £1.9 billion rise in machinery and transport equipment. There were also rises in oil (£0.8 billion), material manufactures (£0.6 billion) and unspecified goods (£0.6 billion). The rise in exports was mainly due to a £2.6 billion increase in machinery and transport equipment, of which aircraft rose by £1.4 billion while other components had small offsetting movements.

Trade in services covers the provision of services by UK residents to non-residents and vice versa. It also covers transactions in goods which are not freighted out of the country in which transactions take place, for example, purchases for local use by foreign forces in the UK, or by UK forces abroad and purchases by tourists. Transactions in goods which are freighted into or out of the UK are included under trade in goods.

The trade in services surplus was £22.0 billion in Quarter 2 2016, a decrease of £0.9 billion from Quarter 1 2016. Exports fell by £0.5 billion from Quarter 1 2016, to £58.0 billion, with imports rising by £0.4 billion from Quarter 1 2016, to £36.1 billion.

The fall in exports was mainly due to a fall in the export of other business services of £0.7 billion. Offsetting this was a £0.2 billion rise in the export of government services. Other components recorded small offsetting changes.

The small rise in total imports of services was mainly due to an increase in the import of transport services and financial services by £0.3 billion and £0.2 billion respectively. These were partially offset by small falls in the import of most other components, such as other business services.

Notes for Trade in goods (Table E) and services (Table F)

  1. 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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7. Primary income account (Table G)

The primary income account is comprised of compensation of employees, investment income and other primary income.

Compensation of employees presents remuneration in return for the labour input into the production process contributed by an individual. In the international accounts, compensation of employees is recorded when the employer (the producing unit) and the employee are resident in different economies.

Investment income covers earnings (for example, profits, dividends and interest payments and receipts) arising from foreign investment in financial assets and liabilities. Credits are the earnings of UK residents from their investments abroad and other foreign assets. Debits are the earnings of foreign residents from their investments in the UK and other UK liabilities. The flow of investment in the financial account is recorded separately from earnings, although reinvested earnings of companies with foreign affiliates are a component of both. The total value of UK assets and liabilities held at any time is also recorded separately under the international investment position.

Other primary income covers earnings from rent and taxes, and subsidies on production and on the import of goods. Under the Balance of Payments Manual fifth edition, taxes and subsidies on production and on the import of goods were classified to secondary income (previously titled current transfers). The recording of rent was previously classified to other investment income.

The primary income deficit narrowed from £11.5 billion in Quarter 1 2016, to £10.0 billion in Quarter 2 2016.

The balance on compensation of employees recorded a deficit of £83 million in Quarter 2 2016, a switch from a surplus of £15 million in Quarter 1 2016.

The balance on direct investment income narrowed from a deficit of £3.8 billion in Quarter 1 2016, to a deficit of £2.0 billion in Quarter 2 2016. The narrowing was due to receipts rising by £2.2 billion from Quarter 1 2016 to £15.3 billion in Quarter 2 2016, while payments only rose by £0.5 billion from Quarter 1 2016 to £17.3 billion in Quarter 2 2016.

Foreign direct investment (FDI) net earnings have followed a broadly downward trend from 2011, falling from an average surplus of £13.4 billion per quarter in 2011 to a record deficit of £6.2 billion in Quarter 4 2015. This was driven by consistent falls in credits, whilst debits increased slightly over the same period. The deficit in net FDI earnings narrowed in the first 2 quarters of 2016, reaching a deficit of £2.0 billion in Quarter 2 2016.

The broadly downward trend shown in FDI credits since 2011 was predominantly caused by falling returns – with the rate of return on FDI assets falling from 7.7% in 2011 to 4.8% in 2015 – while FDI assets remained fairly consistent over this period. In contrast, FDI debits have tended to increase over this period. Initially, this was due to increased investment into the UK, with FDI liabilities rising up until 2015, before rates of return also began to increase in 2015.

The narrowing of the FDI net earnings deficit in the first 2 quarters of 2016 was driven by several combining factors. Firstly, FDI debits fell from £19.1 billion to £16.8 billion between Quarter 4 2015 and Quarter 1 2016; due to a fall in FDI liabilities rather than a change in returns, as shown in Figure 7. FDI credits, meanwhile, were virtually unchanged in Quarter 1 2016.

The FDI net earnings deficit continued to narrow in Quarter 2 2016. In contrast to the first quarter, this was driven by an increase in FDI credits, as opposed to a decrease in debits. FDI credits increased from £13.0 billion to £15.3 billion between Quarter 1 2016 and Quarter 2 2016. This was mainly attributable to a £65.2 billion increase in FDI assets, to £1,414.7 billion; coupled with an increase in the rate of return by 0.6 percentage points to 4.4%, as shown in Figure 7. The improvement in FDI earnings in Quarter 2 2016 was partly offset by a small increase in FDI debits, which reflect a small increase in both FDI liabilities and rate of return.

The portfolio investment income deficit widened by £0.2 billion between Quarter 1 2016 and Quarter 2 2016, to £5.2 billion. This was due to a slight widening in the deficits in both equity securities and debt securities.

The deficit on earnings from other investment was virtually unchanged at £2.7 billion in Quarter 2 2016.

The deficit on other primary income was £0.2 billion in Quarter 2 2016, which was £0.1 billion narrower than Quarter 1 2016.

Notes for Primary income account (Table G)

  1. 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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8. Secondary income account (Table H)

Secondary income represents the provision (or receipt) of an economic value by one party without directly receiving (or providing) a counterpart item of economic value. In plain terms, this is a transaction representing “something for nothing” or without a quid pro quo. Transfers can be in the form of money or of goods or services provided without the expectation of payment. General government transfers include receipts, contributions and subscriptions from or to European Union (EU) institutions and other international bodies, bilateral aid and military grants.

The deficit on secondary income widened from £5.5 billion in Quarter 1 2016 to £6.0 billion in Quarter 2 2016. This was due to payments increasing while receipts remained virtually unchanged.

It should be noted that the quarterly path of net contributions to EU institutions can be erratic due to the timing of payments.

Notes for Secondary income account (Table H)

  1. 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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9. Capital account (Table I)

The capital account comprises 2 components: capital transfers and the acquisition or disposal of non-produced, non-financial assets.

Under BPM6, there is no longer a requirement to record migrant transfers. The manual clarifies that the change in the residence does not involve a transaction between 2 entities but a change in status.

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. As with current transfers, they can be subdivided into general government transfers and other sectors transfers. The main sources of information are government departments (Department for International Development and HM Treasury) and the Bank of England. Compensation payments from the EU are also included here, for example, payments related to the destruction of animals to combat BSE and foot and mouth disease.

The sale or purchase of non-produced, non-financial assets covers intangibles such as patents, copyrights, franchises, leases and other transferable contracts, and goodwill. It also covers transactions involving tangible assets that may be used or needed for the production of goods and services but have not themselves been produced, such as land and sub-soil assets. The use of such assets is recorded under trade in services as royalties and license fees; only the outright purchase or sale of such assets is recorded in the capital account.

The capital account recorded a deficit of £0.3 billion in Quarter 2 (April to June) 2016, a switch from a surplus of £0.5 billion in Quarter 1 (January to March) 2016.

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10. Financial account (Table J)

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 total financial account showed a net inflow (that is, more money flowing into the UK) of £14.5 billion in Quarter 2 2016, compared with a net inflow of £30.5 billion in Quarter 1 2016.

Direct investment recorded a net inflow (that is, more money flowing into the UK) of £2.0 billion in Quarter 2 2016, compared with a net inflow of £70.8 billion in Quarter 1 2016.

For further information on the impact of foreign direct investment acquisitions and disposals, please see background notes, understanding the data, part 2 interpreting the data.

Portfolio investment recorded a net inflow (that is, more money flowing into the UK) of £105.1 billion in Quarter 2 2016, an increase from a net inflow of £35.2 billion in Quarter 1 2016. The increased inflow in portfolio investment was due to non-residents’ net investment of £62.7 billion in Quarter 2 2016. This was broken down into net investment in UK equities of £11.8 billion and UK debt securities of £50.9 billion. Additionally, UK residents recorded net disinvestment of £42.4 billion in Quarter 2 2016. This was broken down into net disinvestment of foreign equities of £6.6 billion and net disinvestment of foreign debt of £35.7 billion.

Financial derivatives and employee stock options showed net settlement payments of £17.0 billion in Quarter 2 2016, following net settlement receipts of £35.3 billion in Quarter 1 2016.

Other investment in Quarter 2 2016 recorded a net outflow (that is, more money flowing from the UK) of £106.7 billion, compared with a net outflow of £37.9 billion in Quarter 1 2016.

Reserve assets showed net investment of £2.8 billion in Quarter 2 2016, a slight increase from net investment of £2.3 billion in Quarter 1 2016.

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11. International investment position (Table K)

The international investment position brings together the available estimates of the levels of identified UK external assets (foreign assets owned by UK residents) and identified UK external liabilities (UK assets owned by foreign residents) at the end of each calendar period.

The international investment position showed net external liabilities (that is, liabilities exceed assets) of £57.0 billion at the end of Quarter 2 2016, compared with net external liabilities of £97.4 billion at the end of Quarter 1 2016.

UK external assets abroad increased by £708.8 billion from the end of Quarter 1 2016, to a level of £11,020.0 billion at the end of Quarter 2 2016. The increase in the stock of UK external assets in Quarter 2 2016 was due to an increase in the value of stock in all asset classes. The value of UK portfolio investment assets increased in Quarter 2 2016 due to the combination of exchange rates movements and price changes in equities and bonds as UK residents continued to be net sellers of foreign equities and debt securities.

UK external liabilities increased by £668.4 billion in Quarter 2 2016, to a level of £11,077.0 billion. The increase in UK external liabilities in Quarter 2 2016 was due to an increase in UK liabilities in each of the main asset classes. While non-residents were generally net investors in the UK in Quarter 2 2016, the devaluation of sterling was also evident in the changes to UK liabilities. The UK has a large banking sector where non-residents place on deposit large amounts of foreign currency. During Quarter 2 2016, these deposits increased significantly in value as sterling weakened.

Figure 11 presents sterling exchange rates against the currencies of major trading partner countries at the close of markets at each quarter end. The chart shows that sterling has been depreciating against most currencies since Quarter 2 2015. From Quarter 4 2015, sterling weakened markedly and continued to weaken following the European Union referendum held in the latter part of Quarter 2 2016. This weakening has in part contributed to the decrease in the UK’s net liability position.

The stock of UK assets and liabilities with the rest of the world can be influenced by movements in exchange rates and price revaluations. Table 1 summarises which type of investment is impacted by these changes.

Most UK assets are held in foreign currency although a small portion of assets such as deposits and loans are held in sterling. Due to the UK’s Balance of Payments being presented in sterling, some assets have increased in value due to the devaluation of sterling. An article summarising the impact of exchange rates on direct investment abroad has also been published today. While direct investment and portfolio investment liabilities are valued in sterling, some elements of other investment liabilities are held by foreign investors in foreign currency, so have also increased in value as a result of the sterling devaluation.

Direct investment and portfolio investment, assets and liabilities, can also be impacted by price changes. During Quarter 2 2016, UK equity assets in the United States of America would have fared comparatively well as the main indices increased slightly compared with falls in European indices, however, foreign exchange movements more than offset these movements. UK equity liabilities increased from Quarter 1 2016 as non-residents continued to invest in UK equities together with the All-share index closing higher despite market volatility. Over the same period, the value of debt securities increased in the UK and generally around the world leading to increases in debt security assets and liabilities.

Notes for International investment position (Table K)

  1. 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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12. Summary of revisions

Data in this release have been revised from Quarter 1 (Jan to Mar) 2015. Revisions tables are included in the balance of payments datasets (Tables R1, R2 and R3). Revisions are due to:

Trade in goods – Revisions from Quarter 1 2015 reflect revised data from HM Revenue and Customs and other data suppliers, revised estimates of trading associated with VAT Missing Trader Intra-Community (MTIC) fraud and a seasonal adjustment. Further information on trade is available in the UK Trade July 2016 statistical bulletin.

Trade in services – Revisions from Quarter 1 2016 are due to updated and late data to survey and administrative sources and a reassessment of seasonal factors.

Secondary income account – Revisions to the secondary income account are due to revised source data for transfers involving the UK government, 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 HM Treasury and the ONS International Trade in Services survey.

Primary income, financial account and international investment position – Revisions from Quarter 1 2015 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 also reflect new estimates from the Bank for International Settlements.

Quarterly revisions to the current account balance as a percentage of GDP

Revisions to the current account balance as a percentage of GDP in this release may be due to revisions to the current account detailed in this section and / or changes to nominal GDP.

Table 2 provides revisions to the current account balance as a percentage of GDP annually for 2015 and quarterly between Quarter 1 2015 to Quarter 1 2016.

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13. Quality and methodology

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

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

  • users and uses of the data

  • how the output was created

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

Methods

More detailed methodological notes for the UK balance of payments are available on our website.

  1. Composition of the data

    Table C provides an EU/non-EU breakdown of the current account and is presented on an EU28 basis.

    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 primary income, secondary income 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.

  3. Applying annual benchmark data

    Foreign Direct Investment (FDI) statistics are collated using a combination of data from the quarterly and annual surveys, both for outward and inward investment. The quarterly survey for outward and inward FDI has 680 and 970 sampled enterprise groups respectively, these increase to 2,100 and 3,500 enterprise groups on the annual survey. Quarterly data are used in the short term to estimate FDI statistics and these data are updated each year through an annual benchmarking process.

    The larger annual sample size and responses – taken from audited annual accounts, rather than quarterly management accounts – can result in revisions. A range of methods are used to benchmark the various FDI variables and their constituent components. For earnings and flows, the difference is allocated evenly or proportionately according to the data from the quarterly FDI survey, across the quarters of the year being benchmarked. For the investment position, otherwise referred to as the stock of investment, Quarter 4 is constrained to the investment position data from the annual survey. The quarterly path for Quarter 1 to Quarter 3 is determined by data from the quarterly survey, so that the movements are maintained, but the values reflect the pre-determined values in Quarter 4.

Quality

  1. Basic quality information

    Common pitfalls in interpreting series are the following:

    • 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. National Accounts revisions policy

    The data in this statistical bulletin are subject to revisions following our National Accounts Revision policy.

    Estimates for the most recent quarters are provisional and, as usual, are subject to revision in light of updated source information. We provide analysis of past revisions in the Balance of Payments and other statistical bulletins which present time series.

  3. Revision triangles

    Revisions to data provide one indication of the reliability of main indicators. Table 3 shows summary information on the size and direction of the revisions which have been made to the data covering a 5 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.

    Table 3 covers estimates first published in the balance of payments from December 2008 (Quarter 3 (July to Sept) 2008) to September 2013 (Quarter 2 (Apr to June) 2013).

    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 our website.

    An article analysing balance of payments current account revisions was published in the May 2007 edition of Economic and Labour Market Review.

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14 .Background notes

What’s new?

This quarter

In accordance with the National Accounts revisions policy, the current revision period is open from Quarter 1 (January to March) 2015.

The Quarter 2 (April to June) 2016 Balance of Payments dataset contains revised Trade in Services estimates compared with those published in the UK Trade bulletin on 9 September 2016. The minor revisions are due to methodological changes, late data returns and the balancing process applied during the compilation of the gross domestic product (GDP) estimates.

Future revision period

The next Balance of Payments release for Quarter 3 (July to September) 2016 will potentially contain revisions from Quarter 1 (January to March) 2015.

Understanding the data

  1. Short guide to Balance of Payments

    A brief introduction to the UK Balance of Payments provides an overview of the concepts and coverage of the UK Balance of Payments using the Balance of Payments Manual sixth edition.

  2. Interpreting the data

    Foreign Direct Investment (FDI) acquisitions and disposals impact on numerous parts of the Financial Account and International Investment Position (IIP). A corporate deal between a UK company and a non-UK company would feature in the equity capital component of the Financial Account and IIP. Other categories of the accounts would also be impacted depending on how any such deal was financed. In some cases equity securities would form the payment and impact on Portfolio Investment. In other cases cash would be used and impact on Other Investment, while some deals would use a combination of equity and cash. It should be noted that as elements of a corporate deal filter through the accounts the impacts would be smaller and potentially dwarfed by other transactions.

    Following a review conducted by the Bank of England, we now presents estimates of income from Foreign Direct Investment (FDI) for all sectors of the economy on a current operating performance basis from 1999. Prior to this, estimates for monetary financial institutions will be on an all inclusive basis which means that holding gains and losses are still included.

    Import figures for Trade in Goods include adjustments to allow for the impact of trade associated with VAT 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 was published on 9 July 2003. A report on further research into MTIC fraud 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, for example, 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.

    From Quarter 1 (Jan to Mar) 2010, we 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 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; and (c) annual benchmarking of surveys.

  3. Definition and explanation

    A glossary of terms used in the UK balance of payments is available on our website and includes new terms used within BPM6.

  4. Special events

    An article outlining our policy on special events can be found on our website.

Publication policy

Details of the policy governing the release of new data are available from the UK Statistics Authority website.

Accessing data

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. You can download the complete bulletin in a choice of zipped formats, or view and then download your own sections of individual series. The Time Series Data can be accessed on our website.

Further balance of payments data is available online in our quarterly publication UK Economic Accounts (UKEA).

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Contact details for this Statistical bulletin

Craig Taylor
bop@ons.gov.uk
Telephone: +44 (0)1633 456333