Balance of payments, UK: January to March 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.

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Release date:
29 June 2018

Next release:
28 September 2018

1. Main points

  • The UK’s current account deficit was £17.7 billion (3.4% of gross domestic product (GDP)) in Quarter 1 (Jan to Mar) 2018, a narrowing of £1.8 billion from a revised deficit of £19.5 billion (3.8% of GDP) in Quarter 4 (Oct to Dec) 2017.

  • The UK’s current account deficit narrowed primarily due to a narrowing of both the trade deficit and the primary income deficit, partially offset by a widening of the secondary income deficit in Quarter 1 (Jan to Mar) 2018.

  • The total trade deficit narrowed to £3.8 billion in Quarter 1 2018, from £5.7 billion in Quarter 4 2017.

  • The primary income deficit narrowed by £1.5 billion in Quarter 1 2018 to £8.1 billion from a revised deficit of £9.6 billion in Quarter 4 2017.

  • The international investment position showed UK net liabilities of £262.3 billion at the end of Quarter 1 2018; a widening from net liabilities of £164.5 billion at the end of Quarter 4 2017, as a result of UK residents moving out of foreign equities and revaluations.

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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) 1997. There have been several changes and improvements implemented for this release as part of UK Balance of Payments, The Pink Book: 2018 to be published on 31 July 2018. We published at the beginning of June a detailed assessment of changes to balance of payments annual estimates, 1997 to 2016, which explained the improvements being made and an indication of their individual impacts to the accounts.

The improvements highlighted in the article as having the largest impacts on the accounts were enhancements to trade in goods and services, including net spread earnings and the share ownership benchmarks also impact the accounts in 2017. However, the impact of these improvements is not identifiable from new data that have become available for 2017.

To supplement the balance of payments impact article we have also published an article National Accounts: UK trade data impact assessment from new developments, 1997 to 2016, which provides more detailed analysis of the improvements to the trade account.

Revisions to the headline current account for the last three years can be seen in Section 8, Summary of revisions.

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.

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3. UK current account deficit narrows for third consecutive quarter

In Quarter 1 (Jan to Mar) 2018, the UK current account deficit was £17.7 billion and equates to 3.4% of gross domestic product (GDP) at current market prices. This was a narrowing from a revised deficit of £19.5 billion (3.8% of GDP) in Quarter 4 (Oct to Dec) 2017 (Figure 1).

The narrowing to the current account deficit was due to a reduction to the deficit on total trade, which narrowed £1.9 billion to £3.8 billion, along with the deficit on primary income account, which narrowed £1.5 billion to £8.1 billion. Partially offsetting these was a widening to the deficit on secondary income, which widened £1.6 billion to £5.8 billion in Quarter 1 2018.

Notes for: UK current account deficit narrows for fourth consecutive quarter
  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. Exports of goods reached record high

The total trade deficit narrowed to £3.8 billion in Quarter 1 (Jan to Mar) 2018, from £5.7 billion in Quarter 4 (Oct to Dec) 2017. This was predominantly due to the narrowing of the deficit on trade in goods by £3.7 billion in Quarter 1 2018, which was partially offset by a narrowing of the surplus on trade in services, of £1.8 billion. (Figure 2).

The trade in goods deficit in Quarter 1 2018 was £31.2 billion, compared with a deficit of £34.9 billion in Quarter 4 2017. The narrowing to the trade in goods deficit in Quarter 1 2018 was due to imports decreasing by £2.3 billion and exports increasing by £1.4 billion.

Imports of goods fell £2.3 billion to £118.2 billion in Quarter 1 2018 due to a decrease to imports of finished manufactured goods, which fell £2.0 billion to £61.8 billion. The decrease to imports of finished manufactured goods was due to a fall in imports of machinery and transport equipment, which fell £2.0 billion on the quarter. Imports of semi-manufactured goods decreased by £0.4 billion to £27.7 billion and unspecified goods decreased by £0.2 billion to £1.0 billion.

Exports of goods increased by £1.4 billion to a record £87.0 billion in Quarter 1 2018. This followed a record annual figure for 2017 of £338.9 billion. The increase in exports of goods was due to exports of finished manufactured goods increasing by £0.8 billion to a record £47.6 billion, which has been a result of a rise in the exports of cars, along with exports of oil increasing by £0.4 billion to a recent record of £7.1 billion (partially due to an increase in the price of oil) and exports of unspecified goods increasing by £0.2 billion to £1.0 billion.

The trade in services surplus narrowed by £1.8 billion to £27.4 billion in Quarter 1 2018. This was due to exports decreasing by £1.4 billion and imports increasing by £0.4 billion.

Exports of services decreased to £69.4 billion due to exports of other business services decreasing by £0.9 billion, exports of telecommunications, computer and information services decreasing by £0.6 billion and intellectual property decreasing by £0.2 billion. These decreases were partially offset by small increases elsewhere.

Imports of services increased by £0.4 billion to a record £42.1 billion in Quarter 1 2018, due to imports of travel increasing by £0.3 billion, imports of financial services increasing by £0.2 billion and imports of transport services increasing by £0.2 billion. Annually, imports of services now stand at a record £165.5 billion for 2017, with imports of other business services being the main driver and seeing a year-on-year increase of £5.7 billion to a record £38.7 billion. This was due to increases reported through the International Trade in Services Survey.

Notes for: Exports of goods reached record high
  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.

  2. Users of the balance of payments and international investment position should be aware that the data in this release is all in current prices, over time price inflation will naturally lead to an increase in values.

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5. UK earnings on portfolio investment abroad highest since 2009

The primary income deficit narrowed by £1.5 billion in Quarter 1 (Jan to Mar) 2018 to £8.1 billion from a revised deficit of £9.6 billion in Quarter 4 (Oct to Dec) 2017 (Figure 3), with receipts increasing by £2.5 billion, partially offset by payments increasing by £1.0 billion.

The narrowing to the deficit on primary income was due to increased earnings on portfolio investment, which rose £1.0 billion in Quarter 1 2018. UK earnings on foreign equities achieved a record £8.8 billion along with UK earnings on foreign debt recording earnings of £6.2 billion; the highest value since Quarter 2 (Apr to June) 2012 (£7.1 billion) as UK residents moved to invest in foreign debt (see Section 6 and Section 7 for more information).

The values of both foreign direct investment (FDI) credits and debits continued the recent upwards trends in Quarter 1 2018. The value of earnings on UK direct investments abroad (credits) rose by £1.5 billion to £22.0 billion in Quarter 1 2018. This was a similar level to that in Quarter 3 (July to Sept) 2017, as shown in Figure 4. The value of earnings on foreign-owned direct investments in the UK (debits) also increased from £16.1 billion in Quarter 4 2017 to £17.2 billion in Quarter 1 2018.

The value of credits has now remained above £20 billion for three successive quarters, which was last observed in 2012. Likewise, the value of debits has remained above £15 billion for the fourth consecutive quarter; the last time this occurred was during the four quarters to Quarter 2 2008. Due to FDI credits and debits both tending to increase over the latest four quarters, the balance of FDI earnings (the difference between credits and debits) have remained relatively stable, increasing by £0.4 billion in Quarter 1 2018 from Quarter 4 2017.

The value of UK FDI assets has remained relatively stable since Quarter 2 2016. The value of FDI assets rose from £1,574.8 billion in Quarter 4 2017 to £1,586.6 billion in Quarter 1 2018, an increase of £11.9 billion. By contrast, the increase in the value of FDI liabilities was larger, rising by £81.8 billion to £1,645.5 billion over the same period.

FDI assets and liabilities have followed upwards trends in recent years, with both now being above £1,500 billion for four successive quarters. The rate of increase in FDI liabilities has generally exceeded that of FDI assets, which has led to the UK’s net FDI position (assets minus liabilities) narrowing for a number of years, and becoming negative again in Quarter 1 2018, by £58.9 billion; the net FDI position was also marginally negative (by £11.9 billion) in Quarter 3 2017. This is part of a longer-term downward trend in the UK’s net FDI position, which has fallen from a peak of £494 billion in Quarter 4 2008, due mainly to a steady increase in the value of UK FDI liabilities.

Notes for: UK earnings on portfolio investment abroad highest since 2009
  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. Financial account

The total financial account showed a net inflow (that is, more money flowing into the UK) of £3.2 billion in Quarter 1 (Jan to Mar) 2018; a small increase on the revised net inflow of £3.1 billion in Quarter 4 (Oct to Dec) 2017, which recorded the smallest inflow since Quarter 3 (July to Sept) 2011 (Figure 5).

Direct investment recorded a net inflow (that is, more money flowing into the UK) of £11.4 billion in Quarter 1 2018 following a net outflow (that is, more money flowing out of the UK) of £16.8 billion in Quarter 4 2017.

The movements recorded in FDI flows in Quarter 1 2018 are mainly attributable to a small number of high-value mergers and acquisitions (M&A) deals, the largest being Vantiv Inc of the USA who acquired Worldpay Group Plc of the UK. More information on M&A can be found in the Mergers and acquisitions involving UK companies: January to March 2018 statistical bulletin.

Portfolio investment recorded a net inflow (that is, more money flowing into the UK) of £37.5 billion in Quarter 1 2018, compared with a net inflow of £61.2 billion in Quarter 4 2017. Within portfolio investment, net equities recorded a net inflow of £67.3 billion in Quarter 1 2018. This is the highest inflow since Quarter 4 2008 (£69.2 billion) and is due to a movement away from the ownership of foreign shares to increased investment in foreign debt securities, which has been evident in a number of sectors.

Financial derivatives and employee stock options showed net settlement receipts of £20.6 billion in Quarter 1 2018, following net settlement payments of £8.5 billion in Quarter 4 2017.

Other investment in Quarter 1 2018 recorded a net outflow (that is, more money flowing out of the UK) of £21.6 billion, compared with a net outflow of £48.9 billion in Quarter 4 2017.

Notes for: Financial account
  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. International investment position

The international investment position (IIP) showed net external liabilities (that is, liabilities exceed assets) of £262.3 billion at the end of Quarter 1 (Jan to Mar) 2018, compared with net external liabilities of £164.5 billion at the end of Quarter 4 (Oct to Dec) 2017 (Figure 6).

UK assets fell by £98.5 billion to £10,632.2 billion in Quarter 1 2018. UK external liabilities fell by £0.8 billion in Quarter 1 2018 to £10,894.5 billion.

The decrease in the value of UK assets in the rest of the world in Quarter 1 2018 was due to several factors. UK residents were net dis-investors in foreign equities to the value of £74.2 billion as shown by the flows series in Figure 7.

In addition to the flows series, the value of the stock of UK assets and liabilities with the rest of the world can be influenced by movements in exchange rates and price revaluations. The flows series accounted for around half of the decrease in the value of UK holdings of foreign equities (£139.7 billion). The remainder was accounted for by foreign stock markets retreating from their recent peaks (£59.5 billion) and currency impacts as sterling continued its recovery against most foreign currencies (£34.9 billion).

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 1 2018, the sterling exchange rate appreciated against a basket of foreign currencies when compared with the end of Quarter 4 2017, except against the Japanese yen with which it showed a slight depreciation.

Notes for: International investment position
  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. Summary of revisions

As mentioned in Things you need to know about this release (section 2), there have been many improvements to the current account. Table 1 shows revisions to the current account balance as a percentage of gross domestic product (GDP) from Quarter 1 (Jan to Mar) 2015 to Quarter 4 (Oct to Dec) 2017.

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9. 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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