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Explanations

UK Economy - Does a rising current account deficit matter?

Geoff Riley

27th March 2023

The UK's external trade accounts are looking quite poorly at the moment. The latest forecast is a current account deficit of over £150 billion in 2023 which would be above 6% of the UK's GDP. To what extent is such a large and rising current account deficit a cause for concern? This short revision video looks at three aspects that might be useful to explain and discuss in an exam answer.

UK Economy - Does a rising current account deficit matter?

The current account deficit is usually an important signal of relative competitiveness.

A large current account deficit usually implies some kind of economic imbalance – for example low productivity, low investment, over-consumption, which needs correcting with a depreciation in the exchange rate and / or improved supply-side competitiveness over time.

The UK’s current account deficit is large and rising – forecast to be 6% of GDP in 2023

Much depends on fluctuations in world prices of the key commodities that the UK imports

The UK can finance a deficit because it remains relatively attractive to financial inflows

That said, the rise in corporation tax from 19% to 25% and non-tariff trade barriers with the EU may start to bite

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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