Unit 2 Macro: The UK Balance of Payments in 2011

Here is an update on the UK trade / current account of the balance of payments figures for 2011. Has there been a noticeable improvement in our trade performance given the 25% depreciation of sterling in recent years? Which parts of the trade accounts have improved? What are some of the key underlying trends? Follow the charts and the brief commentary on each.

The balance of payments (BOP) records financial transactions made between consumers, businesses and the government in one country with others. The BOP figures tell us about how much is being spent by consumers and firms on imported goods and services, and how successful firms have been in exporting to other countries and markets.

At AS level (unit 2) you need to focus on the current account of the balance of payments

The current account

In 2011, there was a current account deficit of £29.0 billion, compared with a deficit of £48.6 billion in 2010. The 2011 deficit is equivalent to 1.9 per cent of GDP. The OECD is forecasting that the UK will move back into a current account surplus by 2013.

Trade in Goods

Trade in goods includes items such as:
* Manufactured goods
* Semi-finished goods and components
* Energy products
* Raw Materials
* Consumer goods i) Durable goods and (ii) Non-durable goods e.g. foods
* Capital goods (e.g. equipment)

The deficit on trade in goods was £99.7 billion in 2011, the highest on record, compared with £98.5 billion in the previous year.

The trade deficit on oil widened by £6.4 billion to £11.2 billion in 2011

The trade deficit on finished manufactured goods narrowed by £9.5 billion to £50.4 billion - rising exports of manufactured products suggest that the lower exchange rate has provided a competitive boost to our export sectors. Can this continue to help the re-balancing of the UK economy?

Trade in Services

Trade in services includes the exporting and importing of intangible products – for example, Banking and Finance, Insurance, Shipping, Air Travel, Tourism and Consultancy.

Britain has a strong trade base in services with over thirty per cent of total export earnings come from services. Indeed the success of our service sector industries has been one of the strong points in tour economic performance over the last twenty years

The surplus for trade in services was a record £71.9 billion in 2011, an increase of £10.1 billion compared with 2010. Exports increased by £13.0 billion - the increase in exports was mainly in financial services and other business services. The increase in imports was mainly in financial services and transportation

Here are some areas where a growing trade surplus reveals the UK to have a strong competitive advantage in service businesses

The diverging path of trade deficit and trade surplus for goods and services is shown clearly in the chart below

Net investment income

Net investment income comes from interest payments, profits and dividends from external assets located outside the UK.

For example a UK firm may own a business overseas and send back some of the operating profits to the UK. This would count as a credit item for our current account as it is a stream of profits flowing back into the UK.

Similarly, an overseas investment in the UK might generate a good rate of return and the profits are remitted back to another country – this would be a debit item in the balance of payments accounts.


Transfers into and out of a country include foreign aid payments. For the UK the net transfers figure is negative each year, mainly due to the UK being a net contributor to the budget of the European Union. As a rich nation, the UK makes sizeable foreign aid payments to many other countries

The annual deficit on current transfers was £22.2 billion in 2011, £1.8 billion higher than in 2010 and the highest on record. The current transfers deficit with EU institutions increased by £0.6 billion in 2011.


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