Hostname: page-component-cd9895bd7-p9bg8 Total loading time: 0 Render date: 2025-01-03T15:30:56.239Z Has data issue: false hasContentIssue false
  • English
  • Français

A Financial Perspective on the UK Current Account Deficit

Published online by Cambridge University Press:  01 January 2020

Philip R. Lane
Philip R. Lane*
Affiliation:
Trinity College Dublin and CEPR
*
E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

A drop in net FDI investment income has been the primary factor in the recent deterioration in the measured UK current account balance, with the trade balance relatively stable. We argue that financial engineering (with little net impact on the underlying international investment position for the UK) may have contributed to the decline in net FDI investment income, such that the headline current account balance cannot be interpreted as a sufficient indicator of the state of the UK's external position. A more granular analysis of cross-border financial linkages than is possible with currently-published data would be required in order to provide a comprehensive assessment of external sustainability.

Keywords

current accountfinancial globalisationinternational investment incomeE01F20F40F62
Type
The UK Economy
Information
National Institute Economic Review , Volume 234 , November 2015 , pp. F67 - F72
Copyright
Copyright © 2015 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

This article is based on research funded by the Institute for New Economic Thinking (INET) and the Irish Research Council. I thank Katharina Bergant and Yannick Timmer for helpful research assistance.

References

Avdjiev, S., McCauley, R.N. and Shin, H.S. (2015), ‘Breaking free of the triple coincidence in international finance’, mimeo, Bank for International Settlements.Google Scholar
Bank of England (2014), ‘The UK current account’, Inflation Report, May, pp. 22–3.Google Scholar
Benetrix, A.S., Lane, P.R. and Shambaugh, J.C. (2015), ‘International currency exposures, valuation effects and the global financial crisis’, Journal of International Economics, 96, S98–S109.CrossRefGoogle Scholar
Broadbent, B. (2014), ‘The UK current account’, speech given on 29 July, Bank of England.Google Scholar
Central Statistics Office (2015), Redomiciled PLCs in the Irish Balance of Payments.Google Scholar
Fitzgerald, J. (2013), ‘The effect of re-domiciled Plcs on Irish output measures and the balance of payments’, ESRI QEC Research Note No. 2013/1/2.Google Scholar
Gohrband, C.A. and Howell, K.L. (2015), ‘U.S. international financial flows and the U.S. net investment position: new perspectives arising from new international standards’, in Hulten, C. and Reinsdorf, M. (eds), Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, University of Chicago Press, pp, 231–7.Google Scholar
Gourinchas, P.-O. and Rey, H. (2014), ‘External adjustment, global imbalances and valuation effects’, in Helpman, E., Rogoff, K. and Gopinath, G. (eds), Handbook of International Economics, Vol. 4, Amsterdam, Elsevier, pp. 585–645.Google Scholar
Lane, P.R. (2015), ‘Cross-border financial linkages: identifying and measuring vulnerabilities’, CEPR Policy Insight No. 77.Google Scholar
Lane, P.R. and Milesi-Ferretti, G.M. (2007), ‘The external wealth of nations Mark II: revised and extended estimates of foreign assets and liabilities: 1970–2004’, Journal of International Economics, 73, pp. 223–50.CrossRefGoogle Scholar
Lane, P.R. and Milesi-Ferretti, G.M. (2009), ‘Where did all the borrowing go? A forensic analysis of the U.S. external position’, Journal of the Japanese and International Economies, 23 (2), pp. 177–99.CrossRefGoogle Scholar
Mancini-Griffoli, T. and Stoffels, N. (2012), ‘Adjusting the current account to better capture wealth accumulation’, mimeo, Swiss National Bank.Google Scholar
Nickell, S. (2006), ‘The UK current account deficit and all that’, speech given on 25 April, Bank of England.Google Scholar
Weale, M.R. (2013), ‘The balance of payments’, speech given on 16 February, Bank of England.Google Scholar
Whittard, D. (2012), The UK's External Balance Sheet – The International Investment Position (IIP) Report, Office for National Statistics.Google Scholar