Although most of the focus on the balance of payments is on trade, i.e. imports and exports of goods and services, it is not the only element in the balance of payments equation, as the #icaewchartoftheweek illustrates.
Based on the 2019 Pink Book published by the Office for National Statistics last week, the balance of payments between the UK and the rest of the world in 2018 comprised a current account deficit of £93bn and a capital account deficit of £3bn, balanced by net inward investment of £77bn and errors and omissions of £19bn.
The current account deficit remains high by historical standards and was equivalent to 4.3% of GDP in 2018, up from 3.5% of GDP in 2017.
The current account deficit incorporates a trade deficit of £38bn, with imports of £680bn exceeding exports of £642bn. This reflects a surplus in services of £104bn that was more than outweighed by a deficit in goods of £142bn.
The primary income deficit of £29bn reflected £242bn in outflows - mainly investment income paid to foreign investors - less £213bn coming into the UK, while the secondary income deficit of £26bn reflects contributions to international institutions (including the EU), international development assistance, remittances and other net transfers.
Capital flows of £3bn reflect both sales of non-financial assets, and capital grants to other countries.
Inward investment of £178bn comprised direct investment in UK businesses of £28bn and £151bn of equity and debt investments, less a net £1bn movement in other forms of investment. Outward investments amounted to £101bn, with direct investments in foreign businesses of £29bn and £204bn in other movements (including currency changes), less net sales of £132bn of equity and debt investments.
Unfortunately, getting the balance of payments to actually balance is quite difficult and so the ONS has plugged the difference between the current, capital and financial accounts with £19bn in 'errors and omissions'. The ONS will continue to revise the statistics over time, with the aim of improving the accuracy of the components reported.
Although the precise numbers will continue to be refined, the overall picture presented by the ONS is unlikely to change. The UK continues to buy more than it sells, pays out more to foreign investors than is earned from foreign investments, and transfers money to the rest of the world; with finance provided by foreign investors.
For more information about the Balance of Payments, visit UK Balance of Payments, The Pink Book: 2019