Table of contents
- Key points
- Summary
- Current account balances as percentage of GDP
- Current account with EU and non-EU countries (Table C)
- Trade in goods (Table E) and services (Table F)
- Primary income account (Table G)
- Secondary income account (Table H)
- Capital account (Table I)
- Financial account (Table J)
- International investment position (Table K)
- Revisions since the last Balance of Payments Statistical Bulletin (Table R1, R2 and R3)
- Background notes
- Methodology
1. Key points
The United Kingdom’s (UK) current account deficit was £25.3 billion in Quarter 4 2014, down from a revised deficit of £27.7 billion in Quarter 3 2014. The deficit in Quarter 4 2014 equated to 5.6% of GDP at current market prices, down from 6.1% in Quarter 3 2014
The narrowing of the current account deficit was mainly due to a narrowing in the deficit on the trade account, partially offset by a widening in the deficit on the secondary income account
The trade deficit narrowed to £6.0 billion in Quarter 4 2014, from £10.2 billion in Quarter 3 2014. This was mainly due to a narrowing in the trade in goods deficit, and an increase in the trade in services surplus
The secondary income deficit widened to £7.6 billion in Quarter 4 2014, from £5.3 billion in Quarter 3 2014. This was due to the deficit in general government increasing by £2.3 billion in Quarter 4 2014
The financial account recorded net inward investment of £27.3 billion during Quarter 4 2014
The international investment position recorded UK net liabilities of £354.7 billion at the end of Quarter 4 2014
In 2014, the UK’s current account deficit was £97.9 billion, up from a deficit of £76.7 billion in 2013. The deficit in 2014 equated to 5.5% of GDP at current market prices. This was the largest annual deficit as a percentage of GDP at current market prices since annual records began in 1948
2. Summary
The balance of payments summarises the economic transactions of the UK with the rest of the world. These transactions can be broken down into three main accounts: the current account, the capital account and the financial account.
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 sum of the current and capital account balances are equal to the balance of the financial account. As the capital account is relatively small in comparison, the current account and financial account can be said to be counterparts.
The current account balance plus the capital account balance measures the extent to which the UK is a net lender (that is, in surplus) or net borrower (that is, in deficit). The UK has run a combined current and capital account deficit in every year since 1983, and every quarter since Quarter 3 1998.
Figure 1: Current account balances (Seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 1: Current account balances (Seasonally adjusted)
Image .csv .xlsQuarter 4 2014 overview
In Quarter 4 2014, the UK was a net borrower of £25.1 billion, down from £27.9 billion in Quarter 3 2014. This was mainly due to the total trade deficit narrowing by £4.2 billion. Partially offsetting this was a widening in the deficit on secondary income of £2.3 billion.
The narrowing in the total trade deficit was due to a fall of £2.4 billion in the trade in goods deficit, and a rise of £1.9 billion in the trade in services surplus. The decrease in the trade in goods deficit was entirely due to exports increasing by £2.4 billion, while the increase in the trade in services surplus was mainly due to exports increasing by £1.7 billion in Quarter 4 2014.
The deficit on secondary income widened from £5.3 billion in Quarter 3 2014, to £7.6 billion in Quarter 4 2014. The widening was due to payments (debits) increasing by £2.8 billion, while receipts (credits) increased by only £0.4 billion
Annual 2014 overview
In 2014, the UK was a net borrower of £97.3 billion, up from £75.9 billion in 2013. This was due to the primary income deficit widening from £15.8 billion in 2013, to £38.8 billion in 2014.
The widening in the primary income account deficit was mainly due to the surplus on the direct investment income account falling by £20.8 billion, from £25.3 billion in 2013, to £4.5 billion in 2014. This was due to UK earnings on direct investment abroad decreasing by £9.3 billion between 2013 and 2014, and foreign earnings on direct investment in the UK increasing by £11.4 billion between 2013 and 2014. Additionally, the deficit on portfolio investment has widened by £3.6 billion, from £27.9 billion in 2013, to £31.5 billion in 2014.
In 2014, the current account deficit equated to 5.5% of GDP at current market prices, compared with 4.5% in 2013. The deficit in trade in goods and services was equivalent to 1.9% of GDP in 2014, compared with 2.0% in 2013. The primary income deficit equated to 2.2% of GDP in 2014, compared with 0.9% in 2013, and the secondary income deficit equated to 1.4% of GDP in 2014, compared with 1.6% in 2013.
Back to table of contents3. Current account balances as percentage of GDP
Figure 2: Balances as percentage of GDP
Source: Office for National Statistics
Download this chart Figure 2: Balances as percentage of GDP
Image .csv .xlsThe current account deficit equated to 5.6% of GDP at current market prices in Quarter 4 2014, compared with 6.1% in Quarter 3 2014. The deficit on trade in goods and services was equivalent to 1.3% of GDP in Quarter 4 2014, compared with 2.3% in Quarter 3 2014. The deficit on primary income equated to 2.6% of GDP in Quarter 4 2014, compared with a deficit equivalent to 2.7% in Quarter 3 2014. The deficit on secondary income equated to 1.7% of GDP in Quarter 4 2014, compared with 1.2% in Quarter 3 2014.
Back to table of contents4. Current account with EU and non-EU countries (Table C)
Figure 3: EU/non-EU current account balance (Seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 3: EU/non-EU current account balance (Seasonally adjusted)
Image .csv .xlsA deficit of £28.3 billion was recorded with the EU in Quarter 4 2014, compared with a deficit of £27.2 billion in Quarter 3 2014. This increase was mainly due to a widening in the deficit on the primary and secondary income balances, these were slightly offset by a narrowing in the deficit on the total trade balance. The current account with non-EU countries switched from a deficit in Quarter 3 2014 of £0.5 billion to a surplus of £3.0 billion in Quarter 4 2014. The switch was mainly due to the surplus on the trade balance increasing from £5.4 billion in Quarter 3 2014 to £9.5 billion in Quarter 4 2014. Slightly offsetting this was a widening in the deficit on the secondary income balance.
Back to table of contents5. Trade in goods (Table E) and services (Table F)
Figure 4: Trade in goods and services balances (Seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 4: Trade in goods and services balances (Seasonally adjusted)
Image .csv .xlsTrade in goods covers transactions in general merchandise for which changes of ownership occur between UK residents and the rest of the world. General merchandise (with some exceptions) refers to moveable goods.
The trade in goods deficit in Quarter 4 2014 was £29.1 billion, compared with £31.5 billion in Quarter 3 2014. Exports rose by £2.4 billion, while imports were virtually unchanged from Quarter 3 2014.
The deficit on semi-manufactured goods and oil narrowed by £1.2 billion to £4.1 billion, and £1.1 billion to £2.5 billion respectively between Quarter 3 2014 and Quarter 4 2014. Additionally, the surplus on unspecified goods widened by £0.3 billion to £0.3 billion during the same period. These were slightly offset by the deficit on finished manufactured goods widening by £0.2 billion to £15.6 billion.
Trade in services covers the provision of services by UK residents to non-residents and vice versa. It also covers transactions in goods which are not freighted out of the country in which transactions take place, for example, purchases for local use by foreign forces in the UK or by UK forces abroad and purchases by tourists. Transactions in goods which are freighted into or out of the UK are included under trade in goods.
The trade in services surplus was £23.2 billion in Quarter 4 2014, an increase of £1.9 billion from Quarter 3 2014. Exports were £1.7 billion higher than Quarter 3 2014, at £54.9 billion, with increases of £1.4 billion and £0.5 billion in the insurance & pension fund services and financial services respectively. Imports decreased by £0.2 billion to £31.7 billion, mainly due to decreases in other business services and intellectual property services, of £0.5 billion and £0.2 billion respectively. Partially offsetting this was an increase in travel services of £0.4 billion.
Back to table of contents6. Primary income account (Table G)
Figure 5: Primary income account balances (Seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 5: Primary income account balances (Seasonally adjusted)
Image .csv .xlsThe primary income account (previously titled income account) is comprised of compensation of employees, investment income and other primary income.
Compensation of employees presents remuneration in return for the labour input into the production process contributed by an individual. In the international accounts, compensation of employees is recorded when the employer (the producing unit) and the employee are resident in different economies.
Investment income covers earnings (for example, profits, dividends and interest payments and receipts) arising from foreign investment in financial assets and liabilities. Credits are the earnings of UK residents from their investments abroad and other foreign assets. Debits are the earnings of foreign residents from their investments in the UK and other UK liabilities. The flow of investment in the financial account is recorded separately from earnings, although reinvested earnings of companies with foreign affiliates are a component of both. The total value of UK assets and liabilities held at any time is also recorded separately under the international investment position.
Other primary income covers earnings from rent and taxes and subsidies on production and on the import of goods. Under the Balance of Payments Manual fifth edition, taxes and subsidies on production and on the import of goods were classified to secondary income (previously titled current transfers). The recording of rent was previously classified to other investment income.
The primary income deficit narrowed from £12.2 billion in Quarter 3 2014, to £11.7 billion in Quarter 4 2014. In terms of functional categories, the decrease was mainly due to the deficit on direct investment narrowing from £1.8 billion in Quarter 3 2014, to £1.2 billion in Quarter 4 2014.
The deficit on compensation of employees widened in Quarter 4 2014 to £155 million from £119 million in Quarter 3 2014.
The deficit on direct investment income narrowed from £1.8 billion in Quarter 3 2014, to £1.2 billion in Quarter 4 2014. The narrowing was due to receipts rising more than payments. Receipts were £19.0 billion in Quarter 4 2014, £1.9 billion higher than in Quarter 3 2014. The increase was due to UK private non-financial corporations recording an increase in profits of £2.9 billion in Quarter 4 2014, to £14.7 billion. Partially offsetting this, UK other financial intermediaries and UK monetary financial institutions both recorded decreases in profits of £0.6 billion and £0.4 billion respectively in Quarter 4 2014. Payments increased by £1.3 billion in Quarter 4 2014 to £20.2 billion. The increase was due to foreign-owned UK private non-financial corporations recording an increase in profits from £13.8 billion in Quarter 3 2014 to profits of £16.4 billion in Quarter 4 2014. Partially offsetting this, foreign-owned UK other financial intermediaries and foreign-owned UK monetary financial institutions both recorded decreases in profits of £0.9 billion, and £0.6 billion respectively in Quarter 4 2014.
The portfolio investment income deficit narrowed slightly between Quarter 3 and Quarter 4 2014, with the deficit narrowing to £7.4 billion from £7.6 billion. This was due to a narrowing in the deficit of equity securities, partially offset by a widening in the debt securities deficit. UK earnings on portfolio investment abroad decreased by £0.1 billion, this was mainly due to a decrease of £0.4 billion in earnings on debt securities. This was partially offset by an increase of £0.3 billion in the earnings of equity securities. Foreign earnings on portfolio investment in the UK decreased by £0.3 billion, due to lower earnings on both UK equity securities and UK earnings in debt securities.
The deficit on earnings from other investment widened by £0.2 billion to £2.9 billion in Quarter 4 2014. Earnings from other investment abroad increased by £0.2 billion to £5.8 billion, while earnings on other investment in the UK increased by £0.5 billion to £8.7 billion.
The deficit on other primary income was £0.2 billion in Quarter 4 2014, virtually unchanged from Quarter 3 2014.
Back to table of contents7. Secondary income account (Table H)
Figure 6: Secondary income account balance (Seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 6: Secondary income account balance (Seasonally adjusted)
Image .csv .xlsSecondary income (previously titled current transfers) represents the provision (or receipt) of an economic value by one party without directly receiving (or providing) a counterpart item of economic value. In plain terms, this is a transaction representing ‘something for nothing’ or without a quid pro quo. Transfers can be in the form of money or of goods or services provided without the expectation of payment. General government transfers include receipts, contributions and subscriptions from or to European Union (EU) institutions and other international bodies, bilateral aid and military grants.
The deficit on secondary income widened by £2.3 billion to £7.6 billion in Quarter 4 2014. This was primarily due to an increase in payments exceeding an increase in receipts. The increase in payments includes £1.7 billion in net adjustments to the GNI and VAT based elements of the European Commission Budget. This £1.7 billion will not be paid by the UK Government until 2015 but has been recorded in Quarter 4 2014 in accordance with international statistical guidance on the appropriate accrual recording.
It should be noted that the quarterly path of net contributions to EU institutions can be erratic due to the timing of payments.
Back to table of contents8. Capital account (Table I)
The capital account comprises two components: capital transfers and the acquisition or disposal of non-produced, non-financial assets.
Under BPM6, there is no longer a requirement to record migrant transfers. The manual clarifies that the change in the residence does not involve a transaction between two entities but a change in status.
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. As with current transfers, they can be subdivided into general government transfers and other sectors transfers. The main sources of information are government departments (Department for International Development and HM Treasury) and the Bank of England. Compensation payments from the EU are also included here, for example, payments related to the destruction of animals to combat BSE and foot and mouth disease.
The sale or purchase of non-produced, non-financial assets covers intangibles such as patents, copyrights, franchises, leases and other transferable contracts, and goodwill. It also covers transactions involving tangible assets that may be used or needed for the production of goods and services but have not themselves been produced, such as land and sub-soil assets. The use of such assets is recorded under trade in services as royalties and license fees; only the outright purchase or sale of such assets is recorded in the capital account.
The capital account recorded a surplus of £0.2 billion in Quarter 4 2014, a switch from a deficit of £0.2 billion in Quarter 3 2014.
Back to table of contents9. Financial account (Table J)
Figure 7: Financial account balances (Not seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 7: Financial account balances (Not seasonally adjusted)
Image .csv .xlsThe 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 financial account showed a net inflow (that is, inward investment) of £27.3 billion in Quarter 4 2014, compared with a net inflow of £29.8 billion in Quarter 3 2014. UK investment abroad switched from net investment (outflow) of £93.8 billion in Quarter 3 2014 to net disinvestment (inflow) of £42.5 billion in Quarter 4 2014. Investment in the UK switched from net investment (inflow) of £123.6 billion in Quarter 3 2014 to net disinvestment (outflow) of £15.2 billion in Quarter 4 2014.
Direct investment recorded a net inflow (that is, inward investment) of £12.0 billion in Quarter 4 2014, compared with a net inflow of £8.1 billion in Quarter 3 2014. For further information on the impact of foreign direct investment acquisitions and disposals, please see background notes, section 3, part 2 interpreting the data.
Figure 8: Financial account: Direct investment (Not seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 8: Financial account: Direct investment (Not seasonally adjusted)
Image .csv .xlsDirect investment abroad switched from net investment in Quarter 3 2014 of £8.2 billion to net disinvestment of £25 million in Quarter 4 2014. The switch was mainly due to investment in debt instruments switching from net investment of £1.1 billion in Quarter 3 2014 to net disinvestment of £11.3 billion in Quarter 4 2014. Additionally, there was a decrease in the reinvestment of earnings from net investment of £3.9 billion in Quarter 3 2014 to net investment of £3.0 billion in Quarter 4 2014. Partially offsetting these was an increase in net investment in equity capital from net investment of £3.2 billion in Quarter 3 2014 to net investment of £8.3 billion in Quarter 4 2014. On a sector basis, the switch to net disinvestment was mainly due to private non-financial corporations recording a decrease in net investment from £9.8 billion in Quarter 3 2014 to net investment of £0.7 billion in Quarter 4 2014. Additionally, other financial intermediaries decreased from net investment of £1.9 billion in Quarter 3 2014 to net investment of £0.1 billion in Quarter 4 2014. These were partially offset by monetary financial institutions decreasing net disinvestment from £3.3 billion in Quarter 3 2014 to net disinvestment of £1.0 billion in Quarter 4 2014.
Direct investment in the UK decreased from net investment of £16.3 billion in Quarter 3 2014 to net investment of £11.9 billion in Quarter 4 2014. The decrease was due to net investment in debt instruments falling by £6.9 billion, from £8.2 billion in Quarter 3 2014, to net investment of £1.2 billion in Quarter 4 2014. Partially offsetting this was an increase in net investment in reinvested earnings from net investment of £5.8 billion in Quarter 3 2014 to net investment of £7.9 billion in Quarter 4 2014. On a sector basis, the decrease in net investment was due to investment in UK private non-financial corporations decreasing from net investment of £13.6 billion in Quarter 3 2014 to net investment of £7.1 billion in Quarter 4 2014. Partially offsetting this was a switch in UK insurance companies from net disinvestment of £46 million in Quarter 3 2014 to net investment of £1.5 billion in Quarter 4 2014.
Portfolio investment recorded a net inflow of £30.3 billion in Quarter 4 2014, a decrease from a net inflow of £52.4 billion in Quarter 3 2014. The decrease was mainly due to disinvestment in debt securities decreasing from net disinvestment of £33.1 billion in Quarter 3 2014 to net disinvestment of £14.0 billion in Quarter 4 2014. Additionally, net disinvestment in equity and investment fund shares decreased from net disinvestment £19.3 billion in Quarter 3 2014 to net disinvestment of £16.3 billion in Quarter 4 2014.
Figure 9: Financial account: Portfolio investment (Not seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 9: Financial account: Portfolio investment (Not seasonally adjusted)
Image .csv .xlsPortfolio investment abroad showed net investment of £15.2 billion in Quarter 4 2014, a switch from net disinvestment of £5.4 billion in Quarter 3 2014. The switch was due to investment in debt securities increasing from net investment of £0.2 billion in Quarter 3 2014 to net investment of £10.8 billion in Quarter 4 2014. Additionally, investment in equity and investment fund shares switched from net disinvestment in Quarter 3 2014 of £5.6 billion to net investment of £4.4 billion in Quarter 4 2014. On a sector basis, monetary financial institutions switched from net disinvestment of £1.4 billion in Quarter 3 2014 to net investment of £13.7 billion in Quarter 4 2014. Additionally, there was a switch by insurance companies and pension funds, and private non-financial corporations from net disinvestment of £1.6 billion and £0.2 billion in Quarter 3 2014, to net investment of £1.9 billion and £2.4 billion in Quarter 4 2014 respectively. Slightly offsetting these was an increase in net disinvestment in other financial intermediaries from £1.8 billion in Quarter 3 2014, to net disinvestment of £3.2 billion in Quarter 4 2014.
Portfolio investment in the UK showed net investment of £45.5 billion in Quarter 4 2014, a decrease from net investment of £47.0 billion in Quarter 3 2014. This was due to decreased net investment in debt securities from net investment of £33.3 billion in Quarter 3 2014 to net investment of £24.8 billion in Quarter 4 2014. Partially offsetting this was an increase in net investment in equity and investment fund shares from £13.7 billion in Quarter 3 2014 to net investment of £20.6 billion in Quarter 4 2014.
Financial derivatives and employee stock options showed net settlement payments of £24.2 billion in Quarter 4 2014, following net settlement receipts of £21.0 billion in Quarter 3 2014.
Other investment in Quarter 4 2014 recorded net investment of £34.9 billion, compared with net investment of £10.4 billion in Quarter 3 2014.
Figure 10: Financial account: Other investment (Not seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 10: Financial account: Other investment (Not seasonally adjusted)
Image .csv .xlsOther investment abroad showed a switch from net investment of £70.6 billion in Quarter 3 2014 to net disinvestment of £37.7 billion in Quarter 4 2014. The switch was mainly due to UK residents switching from making net deposits abroad of £54.7 billion in Quarter 3 2014 to making net withdrawals of deposits of £47.2 billion in Quarter 4 2014. This was mainly due to UK monetary financial institutions switching from making net deposits of £18.8 billion in Quarter 3 2014, to net withdrawals of £38.2 billion in Quarter 4 2014. Additionally, there was a decrease in the net advances of short-term loans by UK monetary financial institutions from £15.0 billion in Quarter 3 2014 to £8.6 billion in Quarter 4 2014.
Other investment in the UK showed a switch from net investment of £60.2 billion in Quarter 3 2014 to net disinvestment of £72.6 billion in Quarter 4 2014. The switch was mainly due to investment in short-term loans switching from net advances of £46.0 billion in Quarter 3 2014 to net repayments of £56.1 billion in Quarter 4 2014. Additionally, there was a switch in non-resident deposits with UK monetary financial institutions from net deposits of £12.8 billion in Quarter 3 2014 to net withdrawals of £18.4 billion in Quarter 4 2014.
Reserve assets showed net investment of £4.2 billion in Quarter 4 2014, compared with net disinvestment of £0.7 billion in Quarter 3 2014.
Back to table of contents10. International investment position (Table K)
Figure 11: Net international investment position (Not seasonally adjusted)
Source: Office for National Statistics
Download this chart Figure 11: Net international investment position (Not seasonally adjusted)
Image .csv .xlsThe international investment position brings together the available estimates of the levels of identified UK external assets (foreign assets owned by UK residents) and identified UK external liabilities (UK assets owned by foreign residents) at the end of each calendar period.
The international investment position showed net external liabilities (that is, liabilities exceed assets) of £354.7 billion at the end of Quarter 4 2014, compared with net external liabilities of £392.7 billion at the end of Quarter 3 2014. UK external assets abroad increased by £453.4 billion from the end of Quarter 3 2014, to a level of £10,257.4 billion at the end of Quarter 4 2014. The increase in the stock of UK external assets in Quarter 4 2014 was mainly due to an increase in the stock of financial derivatives & employee stock options. UK external liabilities increased by £415.4 billion in Quarter 4 2014, to a level of £10,612.1 billion. The increase in UK external liabilities in Quarter 4 2014 was due to an increase in the stock of financial derivatives & employee stock options.
Back to table of contents11. Revisions since the last Balance of Payments Statistical Bulletin (Table R1, R2 and R3)
Data in this release have been revised from Quarter 1 2014. Revisions tables are included in the balance of payments reference tables (Tables R1, R2 and R3).
Trade in goods – Revisions from Quarter 1 2014 reflect revised data from HM Revenue & Customs and other data suppliers, revised estimates of trading associated with VAT Missing Trader Intra-Community (MTIC) fraud, revised survey data on trade prices and a reassessment of seasonal factors. Further information on Trade is available in the UK Trade January 2015 statistical bulletin.
Trade in services – Revisions from Quarter 1 2014 are due to updated survey information from the ONS International Trade in Services (ITIS) survey, with revisions also from the Bank of England and other survey and administrative sources and a reassessment of seasonal factors.
Secondary income account – Revisions to the secondary income account are due to revised source data for transfers involving the UK government, the use of the latest data for various ONS surveys and a reassessment of seasonal factors.
Capital account – Revisions to the capital account are attributable to revised source data from HM Treasury and the ONS International Trade in Services survey.
Primary income, financial account and international investment position – Revisions from Quarter 1 2014 reflect new and revised survey data, a reassessment of coverage adjustments to data from the Bank for International Settlements, and a reassessment of seasonal factors. Revisions also reflect new estimates from the Bank for International Settlements.
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