The UK current account deficit narrowed by £8.3 billion to £15.9 billion in Quarter 3 (July to Sept) 2019, or 2.8% of gross domestic product (GDP), the lowest in percentage terms since Quarter 1 (Jan to Mar) 2012 when a deficit equivalent to 2.6% GDP was recorded.
The large narrowing to the current account deficit was primarily because of a narrowing to the total trade deficit of £10.5 billion to £0.4 billion, or 0.1% of GDP, the lowest since Quarter 1 1998 when a deficit of £0.2 billion was recorded.
The primary income deficit widened by £2.2 billion to £8.7 billion, or 1.6% of GDP in Quarter 3 2019, because of a decrease in UK earnings on foreign investments and increased payments to foreign investors on their UK investments.
The financial account recorded a net inflow into the UK of £36.3 billion in Quarter 3 2019, an increase from a net inflow of £28.3 billion in Quarter 2 (Apr to June) 2019
The value of the UK’s net liability position was £418.5 billion at the end of Quarter 3 2019, a widening from net liabilities of £343.9 billion at the end of Quarter 2 2019; the largest net liability position recorded since Quarter 4 (Oct to Dec) 2015 (£434.6 billion).
In accordance with National Accounts Revisions Policy, data in this release have been revised back to Quarter 1 (Jan to Mar) 2018. Revisions from Quarter 1 2018 reflect:
the introduction of annual benchmarks from the 2018 Foreign Direct Investment (FDI) Survey
revised trade data from the 2018 Annual Survey of International Trade in Services (ITIS)
new and revised survey data
new estimates from the Bank for International Settlements
a reassessment of seasonal factors
Trade revisions were mainly because of improved data with the inclusion of the 2018 Annual Survey of International Trade in Services (ITIS) for the first time, which incorporates a larger sample size than the quarterly ITIS survey that is typically used. The inclusion of the 2018 annual ITIS survey resulted in revisions to both goods and services for 2018 and 2019, as changes have been made to the 2019 data rebased on 2018 data.
The annual ITIS survey has also made methodological improvements that resulted in changes to data. Because of the size of these changes, these improvements have not been included in this release. Further information on the methodological improvements as well as the improved data will be published in 2020.
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.Back to table of contents
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 £8.3 billion to £15.9 billion in Quarter 3 (July to Sept) 2019, or 2.8% of gross domestic product (GDP). This is the narrowest current account deficit since Quarter 1 (Jan to Mar) 2012 when it was 2.6% of GDP. The improvement was mostly because of a significant narrowing in the UK trade deficit, partially offset by a widening in the deficit on primary income.
The UK’s trade deficit narrowed by £10.5 billion in Quarter 3 2019 to £0.4 billion, the smallest deficit since Quarter 1 1998 when it was £0.2 billion. This was caused by exports increasing more than imports. Looking at the individual accounts, it was because of a narrowing in the trade in goods deficit of £5.4 billion and a widening in the trade in services surplus of £5.1 billion.
Figure 3 highlights the compounding impact that the increasing trade in goods and trade in services exports have had in Quarter 3 2019 on the overall trade balance. The increases in exports have come from a range of commodities and services including:
machinery and transport equipment exported to the rest of the world (£4.3 billion)
chemicals exported to the EU (£2.4 billion)
other business services (£2.4 billion), mostly professional and management consulting services
financial services (£1.3 billion), mostly by other financial institutions
The chart also shows how volatile gross trade flows can be over time and the impact price inflation and finding new markets can have over time. Since the last time a deficit of a similar amount was recorded, which was in Quarter 1 1998, both exports and imports have increased in value by almost three times.
Trade in goods
The total trade in goods deficit is recorded at £29.2 billion in Quarter 3 2019 compared with £34.7 billion in Quarter 2 (Apr to June) 2019. Figure 4 shows the main contributors to the narrowing of the deficit. The main positive impacts came from:
finished manufactured goods (deficit narrowed by £2.2 billion to £15.1 billion, mainly because of increased exports)
semi-manufactured goods (deficit narrowed by £1.8 billion to £4.5 billion, mainly because of increased exports)
Partially offsetting these were a slight widening in the deficits on basic materials and oil.
Trade in services
Figure 5 shows the contributors by service type to the quarterly change in the trade in services balance in Quarter 3 2019. The main positive impacts were:
other business services (surplus widened £3.1 billion to £10.2 billion, mainly because of increased exports of professional and management consulting services)
financial services (surplus widened £1.3 billion to £11.0 billion, mainly because of increased exports by other financial institutions)
travel services (deficit narrowed £0.8 billion to £3.9 billion, as exports increased slightly and imports decreased slightly)
There were only a few small offsetting impacts to the improving surplus on trade in services.
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 £2.2 billion to £8.7 billion in Quarter 3 2019. Total credits fell £1.6 billion to £53.5 billion, while total debits increased by £0.7 billion to £62.2 billion.
The primary income deficit widened, partly because of an increase of £1.8 billion in payments to foreign investors on their earnings on direct investment in the UK (Figure 7). This was the first quarter-on-quarter increase since Quarter 3 2018.
The surplus on foreign direct investment (FDI) earnings (credits less debits) narrowed from £8.1 billion in Quarter 2 2019 to £5.7 billion in Quarter 3 2019, a decrease of £2.3 billion. This was because of the increase in the value of FDI debits and a slight fall in the value of FDI credits. This was the first decrease in the balance on FDI earnings since Quarter 4 (Oct to Dec) 2018 when the balance of FDI earnings fell by £1.8 billion (from £5.2 billion to £3.3 billon). Despite the quarterly decrease, this was the 13th consecutive quarter where net FDI earnings have been in surplus.
Notes for: The UK’s current account deficit
- 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.
The UK has run a current account deficit in each quarter since Quarter 3 (July to Sept) 1998, or 1983 when considering annual totals. 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 £36.3 billion in Quarter 3 2019; an increase from a revised net inflow of £28.3 billion in Quarter 2 (Apr to June) 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 portfolio investment category recorded the largest net inflow in Quarter 3 2019 of £80.1 billion. This was because foreign investors increased their portfolio investments in the UK along with UK residents dis-investing in portfolio investments abroad.
Within portfolio investment, net equity securities recorded a net inflow of £53.3 billion and net debt securities recorded a net inflow of £26.8 billion in Quarter 3 2019. Foreign investors increased their investments in the UK, investing £61.9 billion in portfolio investment, the largest investment since Quarter 3 2010 (£75.9 billion). UK investors recorded a dis-investment of £18.2 billion as Quarter 3 2019 sees UK investors moving away from the ownership of foreign shares selling shares to the value of £40.4 billion.
Breaking portfolio investment in the UK down further, foreign investors invested £48.9 billion in UK debt securities, the highest since Quarter 4 (Oct to Dec) 2013 with £37.6 billion of this being attributed to short-term debt.
Within direct investment flows, net inflows of £11.0 billion were recorded in Quarter 3 2019 as UK residents recorded flows of £4.2 billion abroad but foreign investors recorded flows of £15.2 billion in the UK. Inward foreign direct investment flows were influenced by large mergers and acquisitions (M&A) transactions, as documented in the recent Mergers and acquisitions involving UK companies: July to September 2019 release.Back to table of contents
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 £12.1 trillion at the end of Quarter 3 (July to Sept) 2019 (up £515.9 billion), while UK liabilities to overseas residents were valued at £12.5 trillion (up £590.5 billion). These increases resulted in the UK’s net external liability position (that is, liabilities exceeding assets) increasing to £418.5 billion at the end of Quarter 3 2019 from net liabilities of £343.9 billion in Quarter 2 (Apr to June) 2019. This is the largest net external liability position since Quarter 4 (Oct to Dec) 2015 (£434.6 billion).
The increase in the value of UK assets was because of all functional categories recording increases in Quarter 3 (July to Sept) 2019, with the largest being financial derivatives and employee stock options, which recorded an increase of £354.7 billion.
The value of UK portfolio investment assets increased by £54.4 billion, recording assets of £2.8 trillion at the end of Quarter 3 2019. This was because the value of UK residents’ holdings of foreign debt securities and foreign equities increased by £43.0 billion and £11.4 billion respectively. However, the increases in equities 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 net sellers of foreign equities in Quarter 3 2019 to the value of £40.4 billion. Most of the increase was because of exchange rate movements and to a lesser extent stock price changes.
Within UK liabilities, the value of foreign investors’ portfolio investments increased £133.4 billion in Quarter 3 2019 to £3.6 trillion as the value of foreign investors’ holdings of UK debt securities increased by £120.2 billion to £2.1 trillion in Quarter 3 2019. This was mostly caused by revaluations as the value of new investment was just £48.9 billion (Table J in the accompanying dataset).
The value of the UK’s net foreign direct investment (FDI) position fell by £21.3 billion in Quarter 3 2019 (from £70.9 billion to £92.2 billion). The value of FDI liabilities increased from £1,864.6 billion in Quarter 2 2019 to £1,905.5 billion in Quarter 3 2019 (by £41.0 billion). This was partially offset by the value of FDI assets, increasing from £1,793.7 billion in Quarter 2 2019 to £1,813.4 billion in Quarter 3 2019, an increase of £19.6 billion.
UK liabilities on financial derivatives and employee stock options increased in value by £332.8 billion in Quarter 3 2019, partially offsetting the increase recorded in UK assets of financial derivatives and employee stock options. This resulted in an overall net increase of £21.9 billion.Back to table of contents
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 capital account comprises 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.
A more detailed glossary is also available.Back to table of contents
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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