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Statistical bulletin: Balance of Payments, Quarter 4 and Annual 2014 This product is designated as National Statistics

Released: 31 March 2015 Download PDF

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

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)

Figure 1: Current account balances (Seasonally adjusted)

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Quarter 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.

Current account balances as percentage of GDP

Figure 2: Balances as percentage of GDP

Figure 2: Balances as percentage of GDP

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The 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.

Current account with EU and non-EU countries (Table C)

Figure 3: EU/non-EU current account balance (Seasonally adjusted)

Figure 3: EU/non-EU current account balance (Seasonally adjusted)

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A 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.

Trade in goods (Table E) and services (Table F)

Figure 4: Trade in goods and services balances (Seasonally adjusted)

Figure 4: Trade in goods and services balances (Seasonally adjusted)

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Trade 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.

Primary income account (Table G)

Figure 5: Primary Income account balances (Seasonally adjusted)

Figure 5: Primary Income account balances (Seasonally adjusted)

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The 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.

Secondary income account (Table H)

Figure 6: Secondary income account balance (Seasonally adjusted)

Figure 6: Secondary income account balance (Seasonally adjusted)

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Secondary 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.

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.

Financial account (Table J)

Figure 7: Financial account balances (Not seasonally adjusted)

Figure 7: Financial account balances (Not seasonally adjusted)

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The 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)

Figure 8: Financial account: Direct investment (Not seasonally adjusted)

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Direct 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)

Figure 9: Financial account: Portfolio investment (Not seasonally adjusted)

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Portfolio 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)

Figure 10: Financial account: Other investment (Not seasonally adjusted)

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Other 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.

International investment position (Table K)

Figure 11: Net international investment position (Not seasonally adjusted)

Figure 11: Net international investment position (Not seasonally adjusted)

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The 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.

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.

Background notes

  1. What’s new?

    This quarter

    In accordance with the National Accounts revision policy, the current revision period is open from Quarter 1 2014.

    ONS has not been able to apply the 2013 annual benchmark data from the Foreign Direct Investment survey at this time, due to the revisions window only being open for 2014. ONS apologises for the inconvenience and aims to process the 2013 data as soon as possible.

    The Quarter 4 2014 Balance of Payments dataset contains revised Trade in Services estimates compared with those published in the UK Trade bulletin on 12 March 2015. The minor revisions are due to late data returns and the balancing process applied during the compilation of the Gross Domestic Product (GDP) estimates. The Trade in Goods estimates are unchanged.

    Future revision period

    The next Balance of Payments release for Quarter 1 2015 has a proposed revision period open from Quarter 1 2014.

    Future format of the United Kingdom Balance of Payments – The Pink Book

    User consultation was sought on the content of the Pink Book chapter text and consensus was to maintain some form of value added descriptive commentary. Our recommendations are as follows:

    • chapter 1 (Summary) – The commentary will cross cut the various chapters, focusing on interesting topics and key messages

    • chapters 2 to 10 – The focus will be descriptive commentary based on the most recent time periods

  2. Code of Practice for Official Statistics

    National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference. © Crown Copyright 2015.

  3. Understanding the data

    1. Short guide to Balance of Payments

    A brief introduction to the United Kingdom balance of payments (92.1 Kb Pdf) provides an overview of the concepts and coverage of the UK balance of payments using the Balance of Payments Manual sixth edition.

    2. Interpreting the data

    Foreign Direct Investment (FDI) acquisitions and disposals impact on numerous parts of the Financial Account and International Investment Position (IIP). A corporate deal between a UK company and a non-UK company would feature in the equity capital component of the Financial Account and IIP. Other categories of the accounts would also be impacted depending on how any such deal was financed. In some cases equity securities would form the payment and impact on Portfolio Investment. In other cases cash would be used and impact on Other Investment, while some deals would use a combination of equity and cash. It should be noted that as elements of a corporate deal filter through the accounts the impacts would be smaller and potentially dwarfed by other transactions.

    Following a review conducted by the Bank of England, ONS now presents estimates of income from Foreign Direct Investment (FDI) for all sectors of the economy on a current operating performance basis from 1999. Prior to this, estimates for monetary financial institutions will be on an all inclusive basis which means that holding gains and losses are still included.

    Import figures for Trade in Goods include adjustments to allow for the impact of trade associated with VAT MTIC fraud. The adjustments were introduced for the first time in the UK Trade May 2003 First Release published on 9 July 2003. The adjustments are added to the EU import estimates derived from Intrastat returns.

    An article explaining MTIC fraud and the impact on the trade figures (131 Kb Pdf) was published on 9 July 2003. A report on further research into MTIC fraud (137.3 Kb Pdf) was published on 17 February 2005, which summarises the work carried out to review the estimates of the impact on the trade figures.

    Changes to the pattern of trading associated with MTIC fraud can make it difficult to analyse trade by commodity group and by country, as changes in the impact of activity associated with this fraud affect both imports and exports. Originally, most carousel chains only involved EU member states. From 2004 in particular, some carousel chains included non-EU countries, for example, Dubai and Switzerland. However, the MTIC trade adjustments are added to the EU import estimates derived from Intrastat returns, as it is this part of the chain that is not generally recorded. In particular, adjustments affect trade in capital goods and intermediate goods - these categories include mobile phones and computer components, which are still the most widely affected goods.

    Figures for total exports and imports less adjustments for trade associated with VAT MTIC fraud are given in the monthly UK Trade Statistical Bulletin.

    From Quarter 1 2010, ONS have included financial derivatives business of UK securities dealers in both the UK’s financial account (flows) and the international investment position (stocks). The inclusion of this data improves the sector coverage of financial derivatives which previously included only data on financial derivatives business of UK banks.

    An article detailing the improvements to the coverage of derivatives within the United Kingdom Economic Accounts (51.5 Kb Pdf) was published on 25 October 2011.

    Figures for the most recent periods are provisional and subject to revision in light of (a) late and corrected responses to surveys; (b) revisions to seasonal adjustment factors which are re-estimated annually; and (c) annual benchmarking of surveys.

    In order to comply with Regulation (EC) No 184/2005, ONS supply Eurostat and the European Central Bank with current account data for trade in services and investment income unadjusted for FISIM eg FISIM will not be included in trade in services but will remain in investment income. Additionally, a detailed geographical and product breakdown of trade in services is supplied to Eurostat to comply with the same regulation.

    3. Definition and explanation

    A glossary of terms used in the UK balance of payments is available on the ONS website and includes new terms used within BPM6.

    4. Special events

    An article outlining the ONS policy on special events can be found on the ONS website.

    5. Use of the data

    Balance of payments estimates are used by the Bank of England and the Treasury to inform decisions on monetary and fiscal policy. The Department for Business, Innovation and Skills also uses balance of payments estimates to identify international trade partners. International users include the Statistical Office for the European Union (Eurostat) and the International Monetary Fund (IMF). Eurostat uses UK figures to compile aggregate EU accounts and the IMF collate data as a means of ensuring financial stability and sustainability.

    Government departments and others use balance of payments estimates for the following:

    • in providing ministerial briefing on the headline Balance of Payments and Trade statistics pre-release

    • feeding data into their own regular analyses of the macro economy, and also into more ad-hoc and in-depth analyses. For example, importance of trade with particular countries or groups of countries, importance of trade in different commodities, and or services, identifying comparative advantage, changes in import and export prices, economic contribution from trade and primary income, and looking at inward and outward investment. These analyses and briefings are aimed to inform ministers and decision makers of the current and historical situation, and provide evidence for the policy debate

    • balance of payments data are also of interest to a wider range of user groups, including the media, researchers and other regional, national and international policymakers. Some users focus primarily on the developments in the current account and their financing, including the sustainability of the current account imbalances in the longer term and the need for policy adjustments. Others focus on an analytic presentation, classifying its standard components of balance of payments and their relationship to other components (for example trade and direct investment, and foreign direct investment and productivity). The balance of payments allows a sector breakdown of the financial account and their relationship to domestic sources of finance

    Further details on use of the data can be found in the results of the balance of payments user engagement survey (81.8 Kb Pdf) .

  4. Methods

    More detailed methodological notes for the UK balance of payments are available on the ONS website.

    1. Composition of the data

    Table C provides an EU/non-EU breakdown of the current account and is presented on an EU28 basis.

    International investment position statistics are based on recording direct investments at book values, and other assets and liabilities at estimated market values. These estimates are likely in some respects to be deficient in scope and coverage. Quarterly estimates tend to be less reliable because they are largely based on cumulated flows and not reported levels.

    In theory, every credit entry should be matched by a corresponding debit so that total current, capital and financial account credits should be equal to, and therefore offset by, total debits. In practice there is a discrepancy termed net errors and omissions. The net errors and omissions are shown on Table A.

    2. Seasonal adjustment

    Current and capital accounts are seasonally adjusted. Financial account and international investment position data are not seasonally adjusted.

    When compiling the geographic breakdown of primary income, secondary income and trade in services, the EU countries are seasonally adjusted. The non-EU seasonally adjusted figure is calculated by subtracting the seasonally adjusted EU total from the seasonally adjusted world total. Both EU and non-EU data are seasonally adjusted for trade in goods; these are aggregated to form the world total.

  5. Quality

    1. Basic quality information

    Common pitfalls in interpreting series are the following:

    • expectations of accuracy and reliability in early estimates are often too high

    • revisions are an inevitable consequence of the trade off between timeliness and accuracy

    • early estimates are based on incomplete data

    Very few statistical revisions arise as a result of ‘errors’ in the popular sense of the word. All estimates, by definition, are subject to statistical ‘error’, but in this context the word refers to the uncertainty inherent in any process or calculation that uses sampling, estimation or modelling. Most revisions reflect either the adoption of new statistical techniques, or the incorporation of new information which allows the statistical error of previous estimates to be reduced. Only rarely are there avoidable ‘errors’ such as human or system failures, and such mistakes are made quite clear when they do occur.

    2. Summary Quality Report

    The balance of payments Statistical Bulletin Summary Quality Report (117.6 Kb Pdf) is available on the ONS website. 

    3. National Accounts revisions policy

    The data in this statistical bulletin are subject to revisions following the ONS National Accounts Revision policy.

    Estimates for the most recent quarters are provisional and, as usual, are subject to revision in light of updated source information. ONS provides analysis of past revisions in the Balance of Payments and other Statistical Bulletins which present time series. 

    4. Revision triangles

    Revisions to data provide one indication of the reliability of key indicators. The table shows summary information on the size and direction of the revisions which have been made to the data covering a five year period. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows that the test is significant.

    Table 1 covers estimates first published in the balance of payments from June 2007 (Quarter 1 2007) to March 2012 (Quarter 4 2011).

    Table 1: Balance of Payments revisions analysis

    Current account (seasonally adjusted)

    £ million
      Revisions between first publication and estimates three years later
    Value in latest period Average over the last five years Average over the last five years without regard to sign (average absolute revisions)
    Credits (HBON) 170,913 5292* 5890*
    Debits (HBOO) 196,215 2,982 4,373
    Net (HBOP) -25,302 2310* 2689*
     

    Table source: Office for National Statistics

    Download table

    Spreadsheets giving revisions analysis (real time databases) of estimates from 1996 to date and the calculations behind the averages in the table (1.43 Mb ZIP)  are available on the ONS website.

    An article analysing balance of payments current account revisions (340.2 Kb Pdf) was published in the May 2007 edition of Economic & Labour Market Review.

  6. Publication policy

    Details of the policy governing the release of new data are available from the Media Relations Office. Also available is a list of the organisations given pre-publication access to the contents of this bulletin.

    Accessing data

    The complete run of data in the tables of this statistical bulletin is available to view and download in electronic format through ONS Time Series Data. Users can download the complete bulletin in a choice of zipped formats, or view and then download their own sections of individual series. The Time Series Data can be accessed on the ONS website.

    Further balance of payments data is available online in the quarterly ONS publication United Kingdom Economic Accounts (UKEA).

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    Next Publication Date:
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Statistical contacts

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Craig Taylor +44 (0)1633 456333 Balance of Payments bop@ons.gsi.gov.uk
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