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.
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