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UK Current Account


After recording small surpluses in the early 1980s, the UK balance of payments deteriorated badly in the late 1980s following the consumption driven economic boom. Recent years has seen a clear improvement in the figures although 1999 is forecast to see a return to deficit.



Often the root cause of a current account deficit is cyclical. During a boom the demand for imported goods and services rises strongly and if exports cannot keep pace the trade figures move into the red. The economic recession of the early 1990s caused the current account deficit to shrink. Then a boom in exports in 1994-96 lead to small quarterly surpluses in the bop accounts.


The UK has enjoyed current account surpluses in five of the last seven quarters. This is despite a worsening of the balance of trade in goods. The main reason for the improvement in the figures is the growing surplus in trade in services and very strong net investment income from overseas assets.


If the deficit is symptomatic of a lack of competitiveness in those sectors of the economy exposed to international trade, then specific policy measures may be required to help correct the deficit. In the UK's case, some economists believe that there is a structural problem in trade in goods - with the economy failing to export enough products to pay for the imports that we require.


If a country has open capital markets where money can flow into and out of an economy with ease, it should not be a problem to attract the capital inflows needed to finance a balance of payments deficit on the current account. However, in the long-term if imports are increasingly taking over from domestic producers, this threatens economic growth, employment and living standards in the deficit country.




E-mail Steve Margetts