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Current Account

 

The current account is split into two sections itself:

        Visible trade

        Invisible trade

 

Trade in Goods (VISIBLE TRADE)

Trade in goods includes:

        Manufactured goods

        Semi-finished

        Components

        Energy products

        Raw materials

        Consumer and capital goods

 

The table overleaf shows the annual deficit in UK trade in goods with other countries since 1995

 


 


The economy has run a trade deficit since 1983 with the gap widening considerably because of the excessive economic growth in the mid-late 1980s. The deficit shrunk in the early 1990s recession and during 3-4 years of exchange rate weakness between 1993-96. However the trade gap has widened again in 1998-99. This is due to the slowdown in export volumes caused by recession in other leading economies and the lagged effects of a sustained appreciation in the exchange rate over the last three years.

 


 


Trade in Services (INVISABLE TRADE)

Trade in services includes:

        Financial services, e.g., banking and insurance

        Transport services, e.g., shipping and air travel

        Tourism

        Transfers resulting from the loan of factors of production abroad, e.g., interest received on a loan of capital to an American firm and a civil engineer working in Brazil on a construction project

 

The long-term growth and development of service sector industries is reflected in an improving trade balance for Britain with the rest of the world. This is shown in the chart below. The UK has now over-taken France and Germany to become the second biggest service exporter in the global economy.

 


 


 

Is this where our comparative advantage now lies? The surplus in net exports of services has been on an up-ward path since the downturn of the early 1990s as the chart makes clear. In 1997 the surplus reached nearly 12 billion and in 1998 this grew to over 13 billion.

 

Not every service industry makes a net surplus in trade. The UK's main money earner is in business and financial services. Travel and tourism has been in deficit in recent years.

 

 

E-mail Steve Margetts